European equities hovered close to a one-month low on Monday, with telecom shares slumping after talks between Orange and Bouygues on a deal to create a dominant French operator collapsed.
Shares in French group Bouygues slumped almost 15 per cent to €30 and were heading for their worst day in 17 years.
The STOXX Europe 600 Telecommunications index was down 1.2 per cent after hitting a one-month low following the failure on Friday of the proposed €10 billion ($11.4 billion) cash-and-share deal.
Orange was down 5.3 per cent. Other French telecom firms also dropped sharply, with Iliad down 14 per cent, SFR down 14 per cent and Altice down 14 per cent.
The proposed tie-up was widely seen as a make-or-break chance to reduce the number of telecoms groups to three from four in France and prop up profits, which have been depressed since the arrival of low-cost operator Iliad.
Berenberg downgraded Bouygues to “sell” and cut its target price for the stock to €30 from €40.
“We believe that this was one of the last chances for consolidation within the French telecoms market. France will remain a competitive four-player market, with a high capex burden as the market moves to fibre,” Berenberg analysts said.
Choppy market conditions prompted investors to buy defensive stocks, with the European utilities index gaining 0.6 per cent and the food and beverages index up 0.5 per cent.
The pan-European FTSEurofirst 300 index was up 0.1 per cent after falling 1.5 per cent to a one-month low in the previous session. The index is down about 7 per cent this year.
However, a Reuters poll predicted on Friday that European shares will rise 8 per cent from the present levels to the end of 2016, with the European Central Bank’s supportive monetary policy and the region’s improving economic outlook seen helping riskier assets.
The poll also showed that Britain’s benchmark equity index will not make much, if any, progress for the rest of 2016, due to uncertainty over the country’s vote on European Union membership and fears of a global slowdown.