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Europe Markets: Telecom Italia surges on deal news, but Europe stocks give up gains as Merkel drives more COVID worries

European stocks turned lower on Monday, weighed by worries about COVID that were amplified by downbeat comments from German Chancellor Angela Merkel after a weekend of sometimes violent protests across the continent over restrictions. The telecom sector was a bright spot, as Telecom Italia surged on buyout news.

The Stoxx Europe 600 index
SXXP,
+0.03%

fell 0.1% to 485.34, following a modest weekly fall that snapped a six-week winning streak. The German DAX
DAX,
-0.11%

dipped 0.2%, along with the French CAC 40
PX1,
+0.04%
,
while the FTSE 100
UKX,
+0.16%

fell 0.1%. The euro
EURUSD,
-0.20%

dipped 0.1%.

A holiday-shortened U.S. trading week may keep trading volumes lower than normal. U.S. stock futures
ES00,
+0.51%

YM00,
+0.46%

NQ00,
+0.64%

were higher across the board.

Stocks in Europe gave up gains after Bloomberg reported, citing sources, that Merkel had painted a dark picture of the COVID surge in Germany in comments to party officials. The country’s Saxony region is going into partial lockdown for two to three weeks.

Her reported remarks come after a weekend of sometimes violent protests in places such as the Netherlands and Brussels, while Austrians also took to the streets ahead of a nationwide lockdown that began Monday. Austria will also make vaccines compulsory by February.

Protests were also seen in Italy, Switzerland, Croatia, and Northern Ireland.

“With coronavirus cases rising across several member states and partial lockdown restrictions being reimposed in the Netherlands, Austria and Germany, this week’s survey data will be watched closely for signs of harmful economic side effects,” said Emily Nicol, economist at Daiwa Capital Markets, in a note to clients.

Eurozone confidence data are coming later on Monday, with flash November purchasing managers index data for Tuesday.

German stocks were particularly under pressure after Merkel spoke, with heavily weighted software giant SAP
SAP,
-2.09%

SAP,
-2.34%

and e-tailer Zalando
ZAL,
-2.38%

down by more than 3% each.

Among stocks on the move, shares of Telecom Italia
TIT,
+29.26%

surged 27% after U.S. private-equity group KKR & Co.
KKR,
+1.44%

offered €10 billion ($12 billion) to buy Italy’s biggest telecom group and take it private. The board called KKR’s bid “friendly,” and said it met Sunday to discuss the proposal, which would require approval by Telecom Italia’s directors and the government.

The 50.5 euro cents per share offer is roughly a 46% premium to Friday’s closing price. The offer price isn’t bad, considering shares have mostly traded below 40 euro cents since March 2020, said Thomas Coudry, analyst at Bryan Garnier in a note to clients.

“However, we believe Vivendi in particular is not ready to exit on this level, given an average entry price above EUR1. More broadly, we expect Vivendi to oppose the deal, to push for the replacement of [CEO Luigi] Gubitosi instead and to try to weigh more on the company’s operations (extraordinary board meeting planned on 26 November) in order to restore the company’s performance without having to spin off its most valuable assets,” said Coudry, who added that Vivendi, Telecom Italia’s biggest shareholder, may have limited influence on the outcome as it doesn’t control Telecom Italia’s board. Vivendi
VIV,
+1.99%

shares were up 2%.

Buyout hopes also lifted the entire telecom sector, with Spain’s Telefónica
TEF,
+4.60%

TEF,
+4.27%

up 4% and BT Group
BT.A,
+1.84%

up nearly 3%.

Elsewhere in the sector, shares of Ericsson
ERIC.B,
-4.25%

ERIC,
-5.04%

fell 4%, after the Swedish telecom equipment provider said it had reached an agreement to buy U.S. cloud company Vonage
VG,
+24.95%

in $6.2 billion cash deal.

Energy stocks also gave up gains in step with the commodity, with investors concerned that lockdowns and rising cases in Europe could affect demand. Austria’s lockdown announcement sent West Texas Intermediate crude to a seven-week low on Friday. Royal Dutch Shell shares
RDSA,
-0.60%

RDS.A,
-0.46%

fell 1.8%.

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