European Business News (EBN), 96-12-05

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

Page last updated December 5 1700 CET

CONTENTS

[01] South Korean demands Thomson explanation from France

[02] German unemployment surges unexpectedly in November

[03] KLM to buy back shares from Dutch government

[04] Bank of England downplays inflationary pressures

[05] Hanson pretax profits jump 47%

[06] British Gas accelerates demerger plans and renegotiates gas-purchase contracts

[07] SmithKline, Merck lose case over unpatented drugs

[08] Italy inflation falls to 27-year low

[09] Grand Met pretax profit rises, but operating earnings drop 57.8%

[10] Henkel sweetens takeover bid for Loctite

[11] IG Metall reaches regional breakthrough in sick-pay dispute

[12] US non-farm business productivity falls 0.3%

[01] South Korean demands Thomson explanation from France

As part of the deal, the sale of Thomson to Lagardere Groupe would have handed consumer electronics giant Thomson Multimedia to South Korea's Daewoo Electronics.

Amid concern in South Korea that racism had blocked the sale, the Seoul foreign ministry said it had issued a cable through its Paris embassy seeking clarification.

'We have requested an understandable explanation from the French government for our public,' a foreign ministry official said by telephone.

Seoul wanted to know whether France's Privatisation Commission, which produced a negative report that led to the suspension, 'maintained transparency' in its work.

'We would like to know whether the commission's opinion was based on economic factors or public opposition,' he said.

French workers took to the streets to demonstrate against selling what they regard as a prize national asset to a foreign company. Thomson labour unions said jobs were at risk, even though Daewoo promised to create 5,000 new jobs.

The French government made clear the decision to put off the sale was because of Daewoo.

[02] German unemployment surges unexpectedly in November

Economists had predicted that joblessness would rise by a seasonally- adjusted 21,000. Some noted that the data adds to the confusing economic picture Germany has been presenting recently.

The Bundesbank said the economy expanded at a 0.8% rate in the third quarter, but the growth is widely expected to slow in the final quarter and possibley into the new year.

But even stronger growth rates aren't enough to give a substantial boost to the German employment market, which is dogged by structural problems and high wage costs.

Labour Office President Bernhard Jagoda said 'recovery and growth still don't have the strength to stop the unfavourable development in the labour market.'

In western Germany, the number of people out of work on a seasonally adjusted basis rose 34,000 to 2.942 million, while east Germany the number of jobless rose 17,000 to to 1.176 million.

[03] KLM to buy back shares from Dutch government

The carrier said it will buy 17.3 million shares at a price between 900 million guilders and 1.045 billion guilders, depending on price movements in the stock between December 10 and 13.

The shares would be converted into a new class of shares and withdrawn, the two said in a joint statement.

The government and the carrier said the deal was prompted by the desire to continue privatising the airline.

The deal would be waived should the weighted average of KLM's share price fall below 41.00 guilders or rise above 56.00 guilders during this period.

The sum would be financed entirely from KLM's reserves, the statement added.

[04] Bank of England downplays inflationary pressures

George acknowledged that recent gains have made British exporters' prices less attractive abroad, pointing to the impact of higher oil prices and a strengthening dollar as major factors behind the rise. However, he downplayed the effect on exports, saying that lower profits were no surprise; rather, they just followed the 'definition' of a stronger currency.

George, speaking to Parliament about the fiscal 1997-98 budget, praised Chancellor of the Exchequer Kenneth Clarke for raising base lending rates to 6.0% from 5.75% October 30 in an effort to keep price rises in check. He said Clarke's decision even came 'sooner than expected.' But he added that rates will probably have to increase before general elections, due by May 22, 1997.

George and Clarke hold their final monetary meeting of the year Dec. 11.

Many market participants think rates could be raised from the current 6.0%. However, others have noted that Clarke could fight a rate rise so soon after releasing the fiscal 1997-98 budget, in which he argued that inflation pressures continue to be subdued.

George told Parliament that while a rate rise isn't needed urgently, he said increasing 'sooner rather than later' would allow for a smaller rate move. The inflation target commits the government to holding underlying inflation, which excludes mortgage interest payments, to 2.5% from the spring of next year. It is currently running at an annual 3.3%.

George said that 'for some time,' the M0 money supply figures have been heavily influenced by inflation. He added that despite the generally falling inflation in recent years, he remained 'not sufficiently confident' of setting new money supply ranges. Britain's narrow money supply aggregate M0 grew 7.5% in the year through November, remaining well outside the government's target range of 0% to 4%.

[05] Hanson pretax profits jump 47%

Hanson said it anticipates spinning off of its energy unit in February 1997. The date of the extraordinary shareholders meeting will be announced 'as soon as possible,' Hanson said.

Also Hanson said it will pay a dividend of 1 pence a share in the first quarter. Hanson's full-year dividend of 12 pence, unchanged from the previous year, was paid in October.

Hanson is in the middle of a demerger, which will leave a core building materials company. Imperial Tobacco Group and Millennium Chemicals of the the U.S. were both spun off in October at the end of Hanson's financial year. The company's core business, building materials and equipment, had an operating profit of $356 million in 1996 compared with $366 million in 1995. Sales were $3.78 billion in 1996 compared with $3.27 billion in 1995.

Hanson said the two demerged companies, the building materials group - which will retain the name Hanson - and the energy group will 'keep making excellent profits.'

[06] British Gas accelerates demerger plans and renegotiates gas-purchase contracts

But the demerger will leave British Gas's investment in Accord, the U.K. gas trading company, divided between the two demerged entities. British Gas's stake in Accord, the U.K. gas trading company it jointly owns with the U.S.'s NG, will come under control of Centrica, which under the terms of the BG demerger will be created to manage the gas sales and trading activities. However, British Gas' holding of around 25% in NGC will be transferred to BG Plc, which under the demerger will be formed to manage the exploration and production plus gas distribution and storage activities currently under the TransCo title. The position of Accord was seen as a key issue by the U.K. gas industry as many observers have said Accord's trading strategy on the spot market has been partly responsible for the steep rise in U.K. gas prices this year. Speaking at a press conference, Roy Gardner, chief executive designate of Centrica, said of Accord: 'Its trading skills will be an important part in exploiting opportunities in the developing U.K. and European gas commodity markets.' British Gas would not, however, comment on the exact role of Accord and its link with British Gas Trading, or whether Accord would take Morecambe Bay gas into its portfolio. 'These issues are yet to be resolved; we will make best use of the skills acquired by BG trading and Accord,' a senior BG source told Dow Jones following the press conference. Under the demerger, Centrica will bring together gas sales and trading activities currently grouped in the British Gas Energy division, along with the Morecambe gas fields. The exploration and production activities along with gas distribution and storage, currently under the TransCo title, will be formed into a company called BG.

Separately, British Gas said that it renegotiated its `take of pay' gas contracts with British Petroleum and that it will seek shareholder approval for its demerger plan next February 12.

The U.K. company also said it reached an agreement with British Petroleum over 'take-or-pay' gas contracts.

BP said in a statement that it will give British Gas relief on both the volume and price of gas it must purchase under the contracts. In return British Gas will make some compensatory payments.

The take-or-pay contracts force British Gas to purchase a certain volume of gas from the major oil companies, whether or not it needs it. The price paid is well above the open market price and has cost British Gas many millions of pounds.

The 'take-or-pay' contracts, which British Gas has with other suppliers as well as BP, have proved a potentially massive financial burden on the company. Since they were struck, British Gas' share of the British industrial market has shrunk rapidly, and the price of gas has fallen. In addition, the British household gas market is about to be opened up to competition.

[07] SmithKline, Merck lose case over unpatented drugs

In a decision that is a huge setback for the big pharmaceutical companies, the court said the principle of free movement of goods between EU countries must take precedence.

The case involved an effort by Germany's Merck and the UK's SmithKline Beecham to block shipments of some of their pharmaceutical products from Spain and Portugal into Britain on grounds of patent infringement. Importers wanted to bring in the drugs to take advantage of the state- controlled low prices in Spain and Portugal.

The two pharmaceutical companies contested that they should have the right to bar the imports because they were not eligible for patent protection in Spain and Portugal at the time they were placed on the market. But the court said the companies could not prohibit shipments of products that they had willingly put on the market.

'There can be no doubt...that if a patentee could prohibit the importation of protected products marketed in another member state by him or with his consent, he would be able to partition national markets and thereby restrict trade between the member states,' it said.

The court said companies could restrict imports only in cases where they had been legally required to market the products in the exporting country -- a situation that did not apply in this case.

[08] Italy inflation falls to 27-year low

Prodi said there is 'a necessity to act on interest rates.'

Italy's consumer price index rose 0.3% in November over October and was up 2.7% over November 1995, the state statistical institute Istat reported Thursday. When tobacco prices are excluded from the index, prices rose 0.3% and 2.6%, respectively, Istat said.

'The CPI data confirm the correctness of the government's economic policy. The fall in inflation isn't however sufficient to guarantee a rise in growth. There is also a need to move on interest rates,' Prodi said.

Market expectations are for the Bank of Italy - which last cut the discount rate Oct. 24 - to make one more cut before the end of the year. While some believe the rate cut could come as early as this week, others think the central bank will act after the Senate has approved the 1997 supplementary budget.

The Bank of Italy, however, doesn't comment on interest rate moves, but its governor, Antonio Fazio, has indicated he wants inflation 'clearly' below 3% before easing monetary policy.

[09] Grand Met pretax profit rises, but operating earnings drop 57.8%

The food and beverages company also said it is selling its Hoffman Menu group in Germany for £50 million. This continues Grand Met's strategy of selling non-core brands.

Grand Met took an exceptional charge of £550 million from the sale of Pearle, the sale of its European food businesses and other smaller disposals.

Pretax profits including exceptionals fell by 57.8% to £388 million, while earnings per share fell to 2.4 pence.

Bull said 'Pillsbury continues to outperform the U.S. food industry and deliver strong, profitable growth. IDV showed progress on all fronts, with volume increases accompanied by price rises and improved profitability.'

But operating profits from its fast food chain Burger King fell £29 million to £167 million ($275.9 million) in the year ended September 30, hit by difficult trading in Britain and Germany due to the beef crisis and the slowing pace of refranchising outlets. The company opened 756 restaurants in the year to bring its worldwide total to 8,696.

IDV profits were driven by a 5% rise in spirits sales and average price gains of 2%.

[10] Henkel sweetens takeover bid for Loctite

Henkel, which has a $57.75-a-share, or $1.2 billion, tender offer for Loctite shares pending, said it would be prepared to pay the higher amount subject to reaching a definitive merger agreement with Loctite's board, which has rejected the tender-offer terms as inadequate. Henkel already owns 35% of Loctite and is seeking the remainder.

The new Henkel proposal, valued at about $1.3 billion, was announced after the close of stock trading yesterday and came on the deadline date set by Loctite for competing offers from rivals. The proposal is, in effect, an incentive to Loctite to capitulate. A spokesman for Loctite, an adhesives maker, declined to comment on the offer, or to say whether other bids had been received. Henkel, of Duesseldorf, Germany, makes adhesives as part of a broader chemicals line.

In an unusual move, Henkel also released several financial analyses by its investment banker, Rothschild Inc., explaining the methodology for its Loctite valuation -- but also listing the companies it perceived as those most interested in acquiring a large stake in Loctite.

The 'A' list of those Rothschild sees as most likely buyers include Ashland Inc., Minnesota Mining & Manufacturing Co., Morton International Inc. and two French companies, Elf Aquitaine and Total. The second-string, or 'B,' list includes Dow Chemical Co.; DuPont Co.; Unilever PLC, an Anglo-Dutch concern; Akzo Nobel, of the Netherlands; and BASF, of Germany.

[11] IG Metall reaches regional breakthrough in sick-pay dispute

Talks covering 90,000 metal workers in the state of Lower Saxony had resumed at short notice yesterday with both sides saying they hoped a solution could be found at a regional level after national talks collapsed in October.

The IG Metall spokeswoman said this was the 'first breakthrough' in the sector but stressed it was still up to individual regional wage committees to find their own agreements.

IG Metall and employer representatives said they had agreed to maintain sick pay at 100%, to pay a wage increase and had also agreed on rules for overtime and holiday bonuses.

IG Metall's regional leader Juergen Peters told a news conference after 13 hours of talks that under the deal, overtime and overtime bonuses would no longer be taken into account when calculating sick pay in future.

Wages for metalworkers in Lower Saxony will be increased by 1.5% from April 1, 1997 and by a further 2.5% from April 1, 1998.

Several other regional attempts at reaching a deal have failed recently.

[12] US non-farm business productivity falls 0.3%

Non-farm productivity data provide a reading on the efficiency of business by measuring the amount of goods and services produced per hour by all workers. Strong growth in productivity allows wages to rise proportionately without a pickup in inflation.Labor said the third quarter decrease in productivity reflected a revised 1.8% increase in output and a 2.1% increase in hours worked.

Labor previously reported that third-quarter output climbed 2.3%. The increase in hours worked was unrevised at 2.1%.

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

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