Shares of Alcatel-Lucent rocketed to close more than 16 percent higher after Finland's Nokia confirmed it was in "advanced" merger discussions with the French telecoms company.
Nokia shares, meanwhile, fell as much as 6 percent in early deals, before rebounding to finish 3.6 percent lower.
Read More Alcatel-Lucent bid makes 'great strategic sense' for Nokia
In general, market sentiment in Europe has softened after stellar gains last week, with the central bank set for a rate decision and a press conference this Wednesday.
"It was perhaps inevitable that a new week would see a pause for breath, as investors look around for fresh catalysts to drive the next leg higher," Michael Hewson, the chief market analyst at CMC Markets, said in a note on Tuesday.
One of these catalysts could be earnings season in the U.S. and Europe.
Shares of LVMH slipped to close around 2.5 percent lower after the luxury French brand released first-quarter sales figures that were broadly in line with market expectations.
Elsewhere, Germany's BMW shares fell around 1 percent on Tuesday, despite the car manufacturer reporting its best-ever sales figures for the month of March.
Read MoreLVMH spirits sales beat, but fashion disappoints