European Business News (EBN), 96-11-12

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From: The European Business News Server at <http://www.ebn.co.uk/>

Page last updated November 12 1000 CET

CONTENTS

[01] Axa and UAP agree to merge

[02] News Corp. shows unexpected drop in earnings

[03] Allied Domecq earnings decline; firm opts against demerger

[04] European Court rejects U.K. on working week

[05] Sumitomo files second set of charges against former metals trader

[06] German wholesale prices show first annual gain in 13 months

[07] Stet's stock price soars for second day in a row

[01] Axa and UAP agree to merge

The boards of UAP and AXA will meet Today to review the merger plans. In the meantime, the companies have asked that their shares be suspended on the Paris Bourse. Talk of an Axa takeover has been pushing UAP shares up on the Paris stock exchange recently.

[02] News Corp. shows unexpected drop in earnings

Net profit slid to A$283 million (US$223 million) on flat sales of A$3.15 billion. Analysts had been expecting the global media conglomerate top show a 15% gain in earnings.

The poor result caused News Corp. shares to drop 2.5% to close at A$6.95 in trading of more than 4.7 million shares. The stock's decline dragged down the entire Australian stock market and wiped out more than A$300 million of the group's market capitalisation.

News Corp. Attributed the poor showing to weak earnings in its U.S. television, Australian newspaper and book publishing operations. Losses at 50%-owned Ansett Holdings Australia Ltd., an Australian aviation concern, also reduced results.

But News Corp. could still reach its goal of 20% earnings growth for the year. The company said a strong Australian dollar masked a 7% improvement in U.S. dollar operating results, and the earlier profit projection had been made in U.S. dollar terms. The operating profit gain was largely due to the success of the movie 'Independence Day' as well as 'marked gains' in profitability at the group's U.K. newspapers and U.S. publishing divisions as well as improved results from its 40%-owned British Sky Broadcasting satellite television operation in Britain.

[03] Allied Domecq earnings decline; firm opts against demerger

Company decides against a demerger, saying it will focus on improving operating performance Allied Domecq posted an 11% decline in fiscal 1996 pretax profit and said it has decided its clearest road for the future lies in improving performance rather than attempting a demerger.

Pretax profit in the year ended August 30 fell to £575 million. The company said it would pay a final dividend of 14.15 pence a share, for a total payout of 23.59 pence. The drinks and retailing group said that exceptional losses for the year totalled £311 million, including £309 million on the sale of its 50% stake in brewer Carlsberg-Tetley to Bass for £205 million.

Allied Domecq Chairman Sir Christopher Hogg said that 'the best way to improve shareholder value is to improve operating performance and that should be the overriding objective for the foreseeable future.' He added that the company is ‘intent on developing the group's two principal businesses to be leaders in their respective industries.'

Hogg said a demerger for a company of Allied's size would take at least a year to complete, and this would cause a major distraction to its business in the interim.

Allied's Chief Executive Tony Hales emphasized the point saying the company 'will concentrate on ... key brands' and will be looking to increase marketing expenditure from £400 million this year. Hales added that although overall growth in marketing costs was likely 'to be in single figures, key brand support will increase by around one-third' of current spending.

[04] European Court rejects U.K. on working week

The verdict means EU states will face a battle in their talks to amend the Union's treaty since British Prime Minister John Major has made clear he will block other reforms unless he wins changes to protect Britain from such legislation.

The EU court supported Britain on only one point, removing a sentence in the law which says the minimum weekly rest period should in principle include a Sunday.

'The court finds that (EU ministers have) failed to explain why Sunday as a weekly rest day is more closely connected with the health and safety of workers than any other day of the week,' said a statement accompanying the judgement.

Britain had argued that the whole law -- which sets an average maximum work week of 48 hours -- should be thrown out because it was improperly adopted under health rules, which require support of only a majority of EU countries, instead of under EU rules requiring unanimity.

In the latter case, Britain would have been able to veto the rules, which it argues represent gross interference from Brussels.

But the court said that EU ministers had used the proper treaty article, which calls for rules to improve the working environment to protect the health and safety of workers.

The British government promptly said it would require changes in European law.

A spokeswoman for Prime Minister John Major's office said Britain would block any new agreements on EU reform as part of an Intergovernmental Conference now under way unless those treaty changes were made.

The Confederation of British Industry representing employers warned that the ruling would add to business costs.

[05] Sumitomo files second set of charges against former metals trader

Meanwhile, Japanese prosecutors said they indicted the former grader on charges of forging documents in connection with those huge losses.

Hamanaka, the 48-year-old former head of the trading house's nonferrous metals department, was charged with forgery of in-house documents and company order forms to cover up the trading losses.

Sumitomo's latest criminal complaint claims that Hamanaka tried to cover up the losses by offering fictitious warrant deals to Sumitomo's Hong Kong subsidiary in October and November of 1994. According to the complaint, he allegedly swindled $770 million through faked warrant purchases and used the money to conceal part of the losses in his copper trading. The Hong Kong unit, Sumitomo (Hong Kong), didn't incur any losses itself because those losses were reimbursed by the parent when Sumitomo reported its losses.

Sumitomo said it's likely the company will press further charges against Hamanaka, but that given the international nature of his activities, obtaining proper evidence to support the company's claims will take some time.

Since the latest charge involved Sumitomo's Hong Kong subsidiary, the company was able to easily obtain documentation to support its charges, the company said.

[06] German wholesale prices show first annual gain in 13 months

Prices rose 0.2% from September. The figures, which are notoriously volatile, are slightly higher than a consensus forecast of a 0.1% rise in monthly terms and a 0.8% increase from the year before. In October 1995 prices had fallen by a monthly 1.4%, starting a run of wholesale price deflation.

Key components of the wholesale price index driving the rise were heating oil, up 13% and diesel fuel, up 6.8%. But excluding those volatile crude- oil components, the year-on-year rate would have shown a decline of 0.3%.

[07] Stet's stock price soars for second day in a row

Today, Stet's shares have jumped as much as 6% in active trading, following a 6.8% surge Monday to 5,680 lire. Telecom Italia shares are up slightly after plummeting 8% on Monday.

The surprise merger will involve transferring Stet's shares to the Treasury's control, taking them out of the hands of state holding company Istituto per la Riscostruzione Industriale. IRI now controls 61% of STET; the Treasury is IRI's lone shareholder.

Market observers have said investors are buying STET shares betting that the stock-swap merger plan will favour STET, given the current prices of the two companies.

The government on Monday was also forced to confirm growing speculation that Stet's privatisation, slated for March, will be delayed once again. The government has suggested that the next reasonable time for the sale will be next autumn, in light of pending telecom share placements in France, Germany and Switzerland.

Stet's privatisation, a political football, has been delayed repeatedly over the last several years by political obstacles. It had become increasingly apparent this autumn that the March privatisation deadline would be impossible to meet in light of the opposition from the Prodi government's allies on the hard left. They have succeeded in blocking passage of a measure that would establish the regulatory watchdog needed to sell off STET.

The Telecom Italia-STET merger, which will likely take place by next May, is aimed at enhancing the value of STET and thus maximising the state's earnings from the privatisation.

The transfer of Stet's shares to the direct control of the Treasury is aimed at relieving IRI of Stet's debts, and comes under pressure from the European Union. Italy has been under stepped-up pressure from the E.U. to find a solution to IRI's debt problem since a 1992 agreement with the E.U., in which the government pledged to cut IRI's debt by about one-fifth by the end of the year.

From the European Business News (EBN) Server at http://www.ebn.co.uk/

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