European Business News (EBN), 96-11-15

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

Page last updated November 15 1915 CET

CONTENTS

[01] Germany's Wise Men say Bonn is likely to miss an EMU criterion

[02] Bonn plans to sell Lufthansa by the end of the year

[03] KKR considers counter bid for France's DFS

[04] Renault warns commercial results will be worse than expected

[05] Railtrack profit jumps 77% in the first half

[06] Microsoft to spend $400 million on Internet content

[07] Frech hotel group Accor sales fall

[08] Lyonnaise Des Eaux sales fell 9.2%

[09] Thomson-CSF sales rose 2.3% To 23.69 billion francs

[10] Russia plans to merge two telecoms companies

[11] Oasis takes MTV's top group award, but fails to show up

[01] Germany's Wise Men say Bonn is likely to miss an EMU criterion

The economic recovery that began in the spring of 1996 will continue into 1997, but due to a lack of investment the 'basic economic constellation' will remain 'unstable,' the council of the 'five wise men' said in their autumn report.

Germany's deficit-to-GDP ratio will amount to 4.2% in 1996, the report said. But the report said Germany's deficit-top-GDP ratio next year would be 3.3%, missing the target for membership in the planned single European currency. But the council didn't rule out Germany's ability to bring that ratio below the required maximum of 3%, if additional fiscal consolidation measures are implemented.

German Finance Minister Theo Waigel quickly came out with a statement saying that Bonn will bring the ration into line and meet the Maastricht requirement for European Monetary Union. 'Contrary to the opinion of the council, through the approved consolidation measures ... the deficit in 1997 will be below 3% of GDP with a sufficient safety margin,' Waigel said. European Union countries must achieve strict fiscal and economic criteria in 1997 in order to be in the first group of participants in the planned 1999 single currency.

Among the requirements are a public deficit not exceeding 3% of GDP and debt not more than 60% of GDP, or steady progress toward that goal. German officials have stressed that strict adherence to the criteria is essential to create market confidence in the single currency, to be called the euro.

The council said that Germany's monetary policy is currently the country's least worrisome policy area. 'For the goal of monetary stability, 1996 was a good year,' the report said. Noting that monetary policy currently gives rise to 'few worries,' the report said Germany's inflation rate has become 'very low,' with the level of consumer prices falling to an annual average of 1.5%. The situation is the best it has been in 10 years, the report said.

German Economics Minister Gunter Rexrodt, said the council's report confirms that the German government is following the right economic policies.

The report also refutes the argument that the government's plans are gnawing at the social welfare state, he said. 'The report confirms that the economics policy line of the government is the only promising way for a long-term recovery of German growth and employment,' Rexrodt argued.

[02] Bonn plans to sell Lufthansa by the end of the year

Adolf Roth, a budget expert for the CDU parliamentary group, said the government hoped to gain around 2.9 billion marks ($1.9 billion) from the sale of its Lufthansa stake. The money would be counted as government revenue that would lower Germany's gaping budget deficit.

Roth said the transaction could be concluded in the second half of 1997. But by selling the stake to an intermediary a part of the revenue could be applied to this year's budget, he added.

Handelsblatt, Germany's leading economic daily, reported earlier the government was considering selling its Lufthansa stake to state-owned development bank Kreditanstalt fuer Wiederaufbau.

The European Commission signalled earlier this week it approved a German proposal for ensuring the sale of the Lufthansa shares would not discriminate against foreign investors.

Air traffic agreements between Germany and many other countries stipulate that Lufthansa remain under the majority control of German shareholders.

[03] KKR considers counter bid for France's DFS

Last month, LVMH Moet Hennessy Louis Vuitton agreed to pay $2.47 billion for a 58.75% stake in DFS. The deal was struck with two DFS partners, but DFS's other two partners oppose the transaction. According to the Wall Street Journal, people familiar with the situation said that KKR recently told the four controlling DFS shareholders that it is interested in making a bid for the retailer.

The price KKR might pay couldn't be determined, and people close to the situation say the overture is still at an early stage. Still, these people say, a bid from KKR could present an alternative for DFS's four equity holders, who are feuding over whether to sell out to LVMH, one of their biggest suppliers.

Paris-based LVMH, which markets a stable of luxury brands such as Louis Vuitton luggage and Hennessy cognac, agreed to buy a majority stake from DFS shareholders Charles F. Feeney and one-time corporate accountant Alan M. Parker.

But two other DFS shareholders with a combined 40.75% stake in the company sued to block the transaction.

Robert W. Miller, a Hong Kong financier who founded DFS with Feeney in the early 1960s, and Anthony M. Pilaro, have filed suit in New York State Supreme Court to stop the transaction and prevent their partners from 'disseminating confidential and proprietary information concerning DFS.'

It couldn't be learned whether Miller viewed a possible bid from KKR more favourably than the bid from the French company. Miller has previously said he doesn't want to sell his stake in the company and that we wants to continue owning a big stake in the business.

LVMH had an icy response to KKR's overture. A spokesman for LVMH said the company is 'aware of the expressed intent by KKR to put its bid in.' He added, 'Such an offer isn't permissible under the terms of the agreement with LVMH's majority shareholders, and that agreement remains in full force.' He said LVMH plans 'to consummate the purchase under that agreement as soon as possible.'

KKR's entrance could push up the price of DFS. Already, LVMH's rich bid values DFS at a lofty $4.2 billion, or roughly 40% more than its estimated $3 billion in annual sales-a hefty premium even in the current bull market for luxury-goods retailers.

Miller and Pilaro, in their suit, claim the sale to LVMH would hurt DFS because it would damage DFS's relations with other luxury-goods houses.

People close to DFS management and to LVMH have dismissed that suggestion, arguing it wouldn't be in LVMH's interests to run its new prize as anything other than an independent company, especially considering the steep price.

A DFS spokesman declined to comment. Attorneys for the DFS partners either didn't return phone calls or couldn't be reached.

[04] Renault warns commercial results will be worse than expected

The troubled car maker reported a 0.9% slip in sales for the nine months to 135.8 billion francs ($26.67 billion), and said the decline was due to a deterioration in sales of commercial vehicles. Sales in the commercial vehicles division fell 10% to 21.8 billion francs in the nine months. Renault noted that the heavy-duty truck market in the U.S. deteriorated during the period, while Europe is experiencing stagnant registrations and a sharp decline in orders.

Renault said 'the negative contribution from the commercial vehicles division will be considerably more pronounced than anticipated'.

Sales in the automobile division rose 1.5% to 107.9 billion francs in the nine months, during which a government incentive program drew to a close, auto sales rose 5.3% to 33.3 billion francs.

The company noted that its market share for passenger cars in Western Europe declined slightly during the first nine months to 10% from 10.4% a year earlier.

The finance division saw a decline of 4.6% to 6.2 billion francs , primarily because of reductions in interest rates on loans to customers.

[05] Railtrack profit jumps 77% in the first half

The British rail network owner and operator which floated in May also announced an interim dividend of 7.3 pence. Railtrack Chief Executive John Edmonds said the cut in debt interest charges, which has fallen from £62 million to around £19 million, has had a 'significant' effect on profits. Edmonds added that the company will pursue a progressive dividend policy for its year end results.

Railtrack also announced that it has achieved a 12% rise in its operating profit to £169 million. Meanwhile, turnover increased to £1.204 billion from £1.139 billion.

'The first half results in every area of performance, including financial, operational, investment and safety, provided a sound basis for Railtrack to move forward to a successful outcome for the full year,' the company said in a statement. The company added that following its privatisation, it is now free to concentrate all its efforts on developing co-operation with contractors, suppliers and train operators.

[06] Microsoft to spend $400 million on Internet content

The disclosure by Steve Ballmer, Microsoft's executive vice president, signifies Microsoft's determination to dominate the Internet media business as it now rules the global computer-software industry.

Smaller rivals that lack the financial might of the software giant may find it hard to keep up with such spending. Speaking at an industry conference in Boston, Ballmer said the company's investments in its on-line service, Microsoft Network, its Internet news and cable-TV outlet, dubbed MSNBC, and other Internet outposts such as the company's Expedia travel service have already cost Microsoft $300 million to $400 million this year.

In the past, Microsoft executives have been more circumspect, pegging the company's investments at roughly 'hundreds of millions of dollars' - numbers that didn't seem to bother Wall Street.

And that investment could grow: Thursday Tele-Communications Inc. said it was pulling out of its agreement to invest $125 million into Microsoft Network.

'MSN - it's a loss. Expedia - a loss. MSNBC - a loss,' Ballmer told a crowded room of executives Thursday. Ballmer said he didn't expect the company's on-line media efforts to stop bleeding cash until three years from now. 'We're going to lose a lot of money before we break even,' he said.

Such an admission raises troublesome questions over the viability of the Internet as a profitable marketplace. Thousands of companies have set up electronic storefronts on the World Wide Web with hopes of luring customers from around the globe. But precious few have produced a profit, while the vast majority of Web sites are still spilling red ink. Most of these efforts lack the financial resources of Microsoft.

'If only companies with the financial power of Microsoft can make it in the content business, then we're years away from a viable Internet economy,' said George Colony, president of Forrester Research Inc., a market-research company that is sponsoring the industry event.

Roughly 650 executives gathered in Boston at Forrester's annual event, seeking ideas for finding high-tech's holy grail: Internet profits. Mary Modahl, group director at Forrester, estimated that revenue generated from companies' Web sites are covering only 20% to 30% of their costs.

[07] Frech hotel group Accor sales fall

Outside of the sale of Eurest to U.K. catering company Compass PLC, sales would have been up 8.4%, Accor said.

On a constant foreign exchange basis, sales would have been up 3.3% in the year-on-year nine-month period, Accor said.

[08] Lyonnaise Des Eaux sales fell 9.2%

On a constant structure and exchange rate basis, sales rose 2.2% for the nine-month period, Lyonnaise said.

Sales from international operations reached 38.4% of total revenue, up from 34.3% for the same period a year ago, the company said.

[09] Thomson-CSF sales rose 2.3% To 23.69 billion francs

The company said that the rise in sales was due primarily to contributions from U.S. Comwave and Germany's AEG Elektronische Rohren GmbH and Software Union Syseca, which were consolidated in 1996.

The government is currently in the process of privatizing Thomson SA, the parent company of Thomson-CSF.

[10] Russia plans to merge two telecoms companies

Under the plan, according to Igor Plotnikov, spokesman for the government's privatisation agency, Moscow would transfer its 38% stake Rostelekom to state telecoms holding company Svyazinvest.

The plan has broad backing in the government and is likely to be approved in the next few weeks, he said. 'The idea has broad support within the government and when it was proposed at Cabinet . . .it met no sharp opposition but won endorsements.

Once the merger is completed, the government would then sell shares in the new entity to porfolio investors rather than a single purchaser, the spokesman added.

[11] Oasis takes MTV's top group award, but fails to show up

Robbie Williams hosted the glittering musical event, putting his reputation on the line as he started his difficult fight back against his confessed drink and drug addiction since splitting from British heartthrob chartoppers Take That.

America's The Smashing Pumpkins - all-conquering at the U.S. MTV Awards earlier this year - continued their winning streak. They picked up the Best Rock Act Award after playing live and loud, loud loud.

Canadian Alanis Morissette in contrast, accepted her award for Best Female Artist from Texan Supermodel Jerry hall, with a quiet thanks via a video link.

And an act that has rocketed to attention within the last year, The Fugees, dedicated their special Amour Award 'to all the refugees in the world' - the only hint of any politics on a night where music dominated.

But the big winners of the night were Oasis, the multi-million record- selling band from Manchester, northern England. They took double glory, winning the Best Group Award and Best Song for their hit 'Wonderwall.' The award was accepted on behalf of Oasis by Creation Record boss Alan McGee, who discovered the group in the early 1990s.

McGee said Oasis were too busy recording their next album to turn up for the ceremony but added: 'Oasis have the best singer (Liam Gallagher), best band, best music in the world today. They have been responsible for the biggest export of British music since the Beatles.'

The London band Garbage showed they were no such thing by winning the Best Breakthrough Artist award, and The Prodigy skipped off with Best Dance Act.

To top off the ceremony, a nine-hour voting marathon by MTV viewers at home resulted in the American group Backstreet Boys winning the Select Award.

But the MTV Awards night is not just about music. MTV also presented the 'Free Your Mind' award to people who care for the sick, especially those with the AIDS virus HIV.

The awards ceremony was broadcast to a global television audience of more than 265 million, MTV said. (AP)

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