European Stocks Gain on Takeover Speculation; Hochtief Rises

By Sarah Thompson

Aug. 22 (Bloomberg) -- European stocks rose the most in almost two weeks as investors speculated takeovers may increase and a drop in oil boosted airlines and carmakers.

HBOS Plc led banks higher, jumping 6.1 percent, after Reuters reported that Korea Development Bank is open to acquiring Lehman Brothers Holdings Inc. Hochtief AG rallied 9.8 percent after Manager Magazin said Germany's biggest builder may be broken up. Benfield Group Ltd. jumped 30 percent after Aon Corp., the world's biggest insurance broker, offered $1.6 billion for the U.K. company.

`You've got to believe it is a positive sign for the market if companies think it is calm enough to resume activity,'' said Henk Potts, a London-based fund manager at Barclays Stockbrokers, which has $45 billion. ``Merger-and-acquisition activity should be a supportive factor for stocks.''

Europe's Dow Jones Stoxx 600 Index added 1.6 percent to 282.99 at 2:51 p.m. in London, trimming this week's decline to 1.5 percent. Stocks are set for their worst week in more than a month as oil gained and reports signaled faster-than-forecast inflation in the U.S. and Germany, Europe's biggest economy.

The decline has left the Stoxx 600 trading at 11.71 times its members' current earnings, according to weekly Bloomberg data. That's near the lowest valuation since at least 2002.

`In the Sand'

Aon's bid for Benfield follows Xstrata Plc's unsolicited $10 billion takeover offer for Lonmin Plc and General Dynamics Corp.'s purchase of Jet Aviation Management AG this month.

European takeovers have drawn a ``line in the sand'' for asset valuations and represent a turning point for the market, Goldman Sachs Group Inc. said in report.

``Either the market is pricing in a 1970s period of low growth and high inflation, or it has become relatively more attractive,'' Goldman Managing Director Anthony Ling and a team of analysts wrote in the report dated yesterday.

SSL International Plc climbed 5.7 percent after Goldman Sachs Group Inc. recommended buying shares in the maker of Durex condoms and Scholl shoes on speculation it may be a takeover target. TNT NV surged 7.7 percent after the U.K.'s Times newspaper said United Parcel Service Inc. may bid for the Dutch company as soon as this weekend.

Stoxx 600 Valuations

National benchmark indexes rose in all 17 western European markets that were open except Norway. Germany's DAX and France's CAC 40 climbed 1.7 percent. The U.K.'s FTSE 100 gained 1.8 percent.

PSA Peugeot Citroen and Deutsche Lufthansa AG rallied more than 2 percent as oil retreated.

HBOS, the U.K.'s biggest home-loan provider, added 6.1 percent to 285.5. UBS AG, the European bank hardest hit by the subprime contagion, climbed 4.6 percent to 22.82 Swiss francs.

Reuters, citing an unidentified Korea Development Bank spokesman, said Korea Development is studying a number of options, including buying Lehman.

Korean Development Bank is studying a number of options and is open to all possibilities, which could include buying Lehman, an unidentified spokesman for the state-run bank said, according to the Reuters report.

Korea Development Bank's Chief Executive Officer Min Euoo Sung and Lehman spokesman Mark Lane declined to comment on the report.

Bank Losses

More than $13 trillion has been erased from global equity markets in 2008 as $505 billion in writedowns and credit-related losses by banks worldwide threatens economic growth.

Hochtief climbed 9.8 percent to 55.03 euros. Germany's biggest builder may be broken up by its main investors, Manager Magazin reported, without saying where it got the information. Spanish builder Actividades de Construccion & Servicios SA, which holds more than 25 percent of Hochtief, may buy out other shareholders, the magazine said.

ACS doesn't seek a breakup of Hochtief, spokesman Lorenzo Cooklin said in a telephone interview today.

Benfield surged 30 percent to 353 pence. Aon agreed to buy London-based Benfield for 844 million pounds ($1.6 billion), including new shares.

SSL International gained 6.3 percent to 465.5 pence after Goldman Sachs added the stock to its ``conviction buy'' list.

``The group could prove an attractive bolt-on deal for a larger group seeking to increase exposure to branded consumer health products,'' London-based analyst Robert Waldschmidt wrote in a note dated yesterday. In addition, a trading update scheduled for Oct. 16 ``could lead to upward revisions to consensus estimates.''

TNT gained 7.5 percent to 26.61 euros. UPS and Europe's second-biggest express-delivery service may meet to work out a deal over the weekend, with the U.S. company offering 34 euros to 38 euros a share, the Times reported today, without citing anyone.

TNT spokesman Cyrille Gibot didn't immediately return a phone call seeking comment.

Peugeot, Lufthansa

Peugeot, Europe's second-biggest carmaker, increased 3.4 percent to 33.48 euros. Nokian Renkaat Oyj, the Nordic region's biggest tiremaker, added 3.9 percent to 25.98 euros.

Lufthansa, Europe's second-largest airline, climbed 2.6 percent to 14.39 euros.

Crude for October delivery declined $1.72, or 1.4 percent, to $119.46 a barrel today. Oil jumped 4.9 percent yesterday and is headed for a weekly gain as the dollar slumped and a missile- shield agreement between the U.S. and Poland heightened concern Russia may disrupt supplies.

Dragon Oil Plc jumped 8.9 percent to 339.75 pence after the Dubai-based petroleum producer with operations in Turkmenistan said first-half profit gained 34 percent as crude prices rose to a record.

Arriva

Arriva Plc added 4.2 percent to 743 pence. The operator of the U.K.'s longest train route said first-half profit jumped 32 percent as the company added buses, won a rail-route franchise and attracted travelers switching to public transit as gasoline prices rose.

Rentokil Initial Plc tumbled 5.4 percent to 69.75 pence. The world's biggest pest-control provider reported a 68 percent plunge in second-quarter profit and said it will take up to five years to turn around sliding earnings.

To contact the reporter on this story: Sarah Thompson in London at sthompson17@bloomberg.net.