S&P Foresees More Europe M&A’s; Teleconference Today-Details

December 15, 2006

A new report from Standard & Poor’s Equity Research – European Investment Outlook – Riding A Wave Of Volatility – foresees the volume of mergers and acquisition in Europe exceeding the €1.3 trillion [$1.7 trillion] generated by the end of 2006. S&P expects the sector to rise by 12 percent in 2007. “However,” S&P warned that “acquiring companies will have to pay a rising premium to gain control and will find it increasingly challenging to repeat the rate of return achieved on previous deals in 2007.”

Clive McDonnell, Chief European Equity Strategist, and Jean-Michel Six, Chief European Economist, will discuss their expectations for 2007, including the potential for an economic soft landing and the outlook for M&A activity in Europe and investors’ increasing appetite for risky assets, at a teleconference at 2PM GMT/3PM CET today. A Q&A session will take place at the end of the presentation. Call-in details are given at the end of the article.

S&P notes that “Europe has led the charge in global M&A activity this year, with competitive valuations acting as a key attraction for listed and private equity buyers. In the year to date, the average premium paid for M&A transactions in Europe was 18.5 percent, compared to 14 percent a year earlier.” McDonnell indicated that the “premium payable in Europe is very attractive compared with the US, where in the year-to-date it has averaged 27 percent.”

In Europe cash payments make up about 80 percent of the currency used to initially finance an acquisition, which indicates, according to S&P that Europe is in the early stages of the M&A cycle. “This reflects the ready availability of cheap funding, be it from private equity, hedge fund investors or banks'” McDonnell indicated. “Only when we see investors switch their preference to using equity or bonds as the initial currency to finance acquisitions can we say that the M&A boom is entering its mature phase.”

He also noted that “companies from emerging markets, particularly Russia and China, are expected to become more aggressive in targeting European companies in 2007 due to the scale of foreign currencies that both private and state-owned companies are accumulating.”

The M&A trend reflects increased market value and earnings. S&P’s Europe 350 Index has doubled in value from its March 2003 low, and this has been matched by a corresponding doubling in earnings. “This implied that the rally that we have witnessed thus far in the cycle is supported by fundamentals and our forecast is based on a continuation of this trend,” McDonnell continued. “With consensus 2007 earnings per share (EPS) growth forecast at 8 percent, Standard & Poor’s Equity Research 2007 forecast implied only a modest re-rating in the market to 13.5x 12-month forward earnings by year-end. Industrials and pharmaceutical stocks are expected to outperform the market, while the consumer discretionary and IT sectors will lag. Standard & Poor’s expects GDP growth in the Eurozone and US to weaken in 2007. However, global emerging markets, which now account for nearly one third of global output, are of sufficient size to offset much of the slowdown in the US.”

Teleconference Details:
To access the teleconference, please call in at least 10 minutes early to ensure your prompt connection. Conference ID#: 3254102 Passcode: ‘SANDP’
Call numbers are as follows:

Country Number
Austria 0800 111 955
Belgium 0800 408 65
Denmark 8088 4419
Finland 0800 117 104
France 0805 111 340
Germany 0800 101 3106
Greece 0080 0441 31376
International Dial In +44 (0) 1452 560 068
Italy 8007 824 36
Netherlands 0800 023 4612
Norway 800 165 26
Spain 800 099 189
Sweden 0200 887 526
Switzerland 0800 000 112
UK 0800 953 0810
USA 1866 789 2220
If you would like to hear a replay of the teleconference, please call +44 (0) 1452 55 00 00. The replay will be available through December 28, 2006.

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