European Business News (EBN), 96-12-18

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

Page last updatedDecember 18 1815 CET

CONTENTS

[01] BA to sever ties with USAir and sell its 25% stake

[02] London Electricity accepts $2.11 billion takeover bid from Entergy

[03] UK jobless rate drops to 6.9% in November

[04] Northern Electric continues defence efforts against CalEnergy

[05] Gulf Canada offers $721 million cash for Clyde Petroleum

[06] Van Miert says Boeing, McDonnell merger may be `problematic'

[07] German M3 money-supply growth slid preceptibly in November

[08] Japan's trade surplus shows first expansion in two years

[01] BA to sever ties with USAir and sell its 25% stake

The British airline said that it was required to offer the shares to USAir before selling them and that the U.S. airline has 60 days to decide whether to purchase the 25% stake. BA said it was not disclosing the price it has offered.

In addition, it said it has exercised its rights to require USAir to register all the shares BA holds in order for a public offering to take place. If USAir doesn't take up the offer, BA will be free to sell the stake privately or in a public offering.

BA said its three directors on USAir's board would resign when the stake, currently around 25%, is sold.

In the statement, BA's chief executive officer Bob Ayling said the sale had not resulted from USAir's recent lawsuit against BA related to the British carrier's proposed strategic alliance with American Airlines.

'British Airways has taken this action with regret. But it has become inevitable. It would clearly be unwise to pursue an alliance with an unwilling partner. We still believe the legal action to be groundless,' Ayling said.

[02] London Electricity accepts $2.11 billion takeover bid from Entergy

Entergy, bidding through its Entergy Power U.K. subsidiary, said London Electricity shareholders will receive an already announced 14.3 pence-per- share special dividend and that the offer represents a 27% premium to the share price in late October, before bid speculation in the sector pushed London Electricity's share price higher. The bid values London Electricity's shares at 705 pence apiece.

Entergy said that the U.K. regional electricity company, which supplies power to the nation's capital city, will ''provide a platform for Entergy's future expansion in Europe'' and ''for developing an expanded business in the U.K.''

London Electricity's decision to recommend the offer to shareholders contrasts with another recent bid for a U.K. electricity company. Northern Electricity is fighting a hostile takeover bid from CalEnergy.

London Electricity said it was pleased with the Entergy bid. ''The board of London Electricity considers that the offer represents fair value for London Electricity and is in the best interests of London Electricity shareholders, customers and employees,'' London Electricity Chairman Sir Bob Reid said.

He added that the partnership will help London develop a strong business base and further its focus on customer service. Nigel Hawkins, analyst at Yamaichi, said widespread expectations of an Entergy bid is the main reason that London Electricity's share price has climbed only modestly so far.

''The price Entergy is paying is par for the course, and the bid comes as no real surprise given the disclosure a couple of weeks ago that the two parties were in talks,'' Hawkins said.

He added that concerns that the MMC might launch an enquiry have faded since other U.S. companies have been allowed to proceed with takeover bids for U.K. targets.

However, he added that there remains the political risk of the government's objecting to a U.S. company's taking over the electricity distributor in the capital city.

[03] UK jobless rate drops to 6.9% in November

The number of unemployed fell by 95,800, the biggest fall since 1971, to 1.93 million.

The fall, reported by the Office for National Statistics, was nearly four times as large as the decline of 25,000 economists were expecting and the largest monthly fall since the series began in January 1971.

It took the level of unemployment to its lowest since January 1991. It was last below 2 million in February 1991.

The ONS said around 25,000 of fall was probably accounted for by the recently-introduced jobseeker's allowance. It said it is not possible to give and underlying trend for the fall in unemployment but said the downward trend is still within the 15,000 to 20,000 estimated last month and is possibly faster.

The number of people employed in manufacturing rose by 6,000 in October to 3,939,000, an increase of more than 1,000 on the year.

The stock of vacancies at government employment offices rose by a seasonally adjusted 7,100 to 269,700 in November, the highest level since the series began in January 1980.

Other official figures showed retail sales rose 0.7% in November after a 0.5% gain in October.

[04] Northern Electric continues defence efforts against CalEnergy

The British regional electric company also cited a £1.2 billilon agreed takeover bid for as an example of how CalEnergy's bid undervalues the company.

The British regional electric company said it expects pretax profit for fiscal 1997 to be 14% ahead of current market expectations.

The company predicted that net debt at the same time will be 46 pence a share lower than market estimates.

The news comes as a further stage of defence against a hostile takeover bid from U.S. company CalEnergy.

Northern also reiterated it's belief that the CalEnergy bid is too low. Northern noted Entourage's £1.2 billion agreed takeover bid for London Electricity as an example of how cheap CalEnergy bid is.

'If Northern Electric's shareholders were being offered the same cash flow multiple as those in London Electricity, they would be receiving around 780 pence per ordinary share in cash,' Northern said.

CalEnergy boosted its offer for Northern Electric to 650 pence a share on Dec. 6, and said the offer won't be improved before the offer period closes this Friday.

In an unusual response to Entergy's bid, Northern said Wednesday that if the cash-flow ratios used in valuing London Electricity were applied to Northern Electric, CalEnergy's bid would have to be 780 pence a share.

Northern has said CalEnergy's offer price, which values it at £782 million, is still too low and that major shareholders, including insurance giant Prudential Corp., oppose the takeover.

The U.K. government cleared CalEnergy's bid on Friday, meaning it won't be referred to the U.K. Monopolies and Mergers Commission. The move suggests Entergy's bid also will be waved through by regulators.

London Electricity was pleased with the offer.

'The board of London Electricity considers that the offer represents fair value for London Electricity and is in the best interests of London Electricity shareholders, customers and employees,' London Electricity Chairman Sir Bob Reid said.

He added that the partnership will help London develop a strong business base and further its focus on customer service.

[05] Gulf Canada offers $721 million cash for Clyde Petroleum

The Canadian company said the bid represented a premium of 24.3% over the mid-market quotation for a Clyde share of 84 1/2 pence at yesterday's close.

The group said in a statement that it already owned 7.4 million Clyde shares, or about .8% of the UK oil and gas exploration company's shares.

'The offer for Clyde follows Gulf Canada's previously stated desire to increase its activities outside of its existing core areas of North America and Indonesia,' J. P. Bryan, president and chief executive of Gulf Canada said.

The company added that Clyde's North Sea and Australian assets would provide it with additional core areas, while Clyde's Indonesian assets would complement its existing assets.

[06] Van Miert says Boeing, McDonnell merger may be `problematic'

Analysts, and Airbus, don't agree with the opinion of E.U. Competition Commissioner Karel Van Miert that the merged group could run afoul of E.U. antitrust rules.

Van Miert called the case 'complex and problematic,' and said the Commission would be particularly interested in the market position of Boeing as a result of the link.

The competition czar said European planemaker Airbus, which groups Daimler- Benz of Germany, Aerospatiale of France, British Aerospace and Spain's Construcciones Aeronauticas, hadn't yet contacted the Commission regarding the merger, but said he expected to hear from the company. 'I'm sure, one way or another, Airbus will give us the benefit of their views,' he told journalists.

Not necessarily, says Airbus.

'Why does he want to hear from us?' asked Robert Alizart, Vice President of corporate communications at Airbus in Toulouse. He says the European conglomerate isn't quaking in its shoes at the prospect of competing with the McDonnell/Boeing powerhouse.

'The terms of the competition aren't altered much,' by the merger news, Alizart said. Airbus takes a 'serene' view of the merger, he added.

Airbus says that it had a hold in 1996 on some 41% of the global market in which it competes with Boeing, while it reckons Boeing controlled 53% of that market. Neither Boeing nor Airbus had estimates for their grip on the E.U. market, which is of primary interest to the Commission.

Airbus' Alizart noted that McDonnell Douglas' grip on the civil aviation market has dwindled enormously and added that the merger shouldn't hit Airbus sales substantially.

'The manufacture of civil aviation jets is a two-horse race anyway,' he said. ' Douglas is out of the civil aviation business.' For its part, Seattle-based Boeing said it 'intends to provide information about its merger with McDonnell Douglas to the Commission,' but added that it doesn't foresee competition concerns.

'We don't anticipate any impediments to this merger from the E.U. Commission since Europe's principal commercial aircraft manufacturer, Airbus, has already stated that the merger doesn't change the competition environment,' spokesman Tim Neil said from Seattle.

Analysts generally agree with the companies saying the merger won't have a negative effect on competition.

'Douglas had faded as a force in the civil airline market and consolidating its product into Boeing's range doesn't change the competitive dynamic which remains a war between Boeing and Airbus,' said analyst Chris Avery of Paribas Capital Markets in London.

Zafar Khan, analyst at Societe Generale in London, said the Commission's action would have little impact anyway at this stage. The merger is `a done deal,' he said.

The aviation megamerger will create a global colossus with estimated annual sales of $48 billion and an estimated 60% grip on the world's market for large, commercial jetliners. The merged company will also manufacture a range of military planes.

[07] German M3 money-supply growth slid preceptibly in November

The broad money category expanded at an annual 8% rate in the month following an 8.4% pace in October. The rate was at the lower end of economists' expectations of an 8% to 8.2% growth rate.

The central bank said growth was slowed by a 'a considerable revival of monetary capital formation and larger capital shifts into the Euro market.' damped M3 in October.

'After the strong rise in money stock in October, monetary development in November slowed perceptibly,' the central bank said.

The Bundesbank's target range for M3 growth in 1996 is 4% to 7% and the bank is scheduled to set its 1997 target range tomorrow.

Bank lending to domestic non-banks remained buoyant but public sector lending slowed slightly while private sector lending grew.

Among savings components, only savings accounts grew in the period while other components eased.

'Even sight deposits, which rose unexpectedly fast in the previous month due to the acquisition of Telekom shares, were scaled back considerably,' the Bundesbank said.

[08] Japan's trade surplus shows first expansion in two years

'The timing was a surprise,' Yasushi Okuda, economist at BZW Securities Japan, said of news that the merchandise trade surplus expanded 0.2% from year-earlier levels to 675.19 billion yen.

That was the first increase in 2 years, and the surplus was far bigger than the 498.8 billion yen that a survey of Tokyo-based economists by AP-Dow Jones has forecast.

Like some other economists, Okuda had expected the first rise in the surplus to occur early next year. Special factors, including a sudden decline in oil prices, caused it to happen earlier than expected.

Okuda said the surplus could therefore resume falling year-on-year in December, and possibly continue dropping in January.

But a series of rises in the surplus should then begin later in 1997, economists said.

'Looking at the trend line, (the November data) isn't surprising,' says Mineko Sasaki-Smith, an economist at CS First Boston.

Economists noted that a major factor behind the rise in the surplus was a sharp rise in automobile exports - something that could well continue in coming months. The depreciation of the yen has made Japan's auto exporters more competitive, while they have been boosting exports to assure US market share until their new capacity in the US comes on stream in the next few years.

Many economists warned that the sudden reversal heralded a possible return of trade friction with the US and a shift in US authorities' stance in favour of a strong dollar.

November auto exports rose 27.7% on the year, while passenger car exports gained 32.1%, CS First Boston's Sasaki-Smith noted. The rise in car exports was especially dependent on a 45.7% surge in shipments to the US.

Overall, Japan's politically-sensitive trade surplus with the US surged 31.2% to 378.39 billion yen in November from the year-earlier month.

On the other hand, the importance of auto shipments to the US in overall exports could make Japan's economy vulnerable to a slowdown, economists said. 'That's a danger if the US economy slows,' BZW's Okuda says.

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

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