European Business News (EBN), 97-03-12

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

Page last updated March 12 1645 CET

CONTENTS

[01] France and Germany reaffirm their intentions of being founders of EMU

[02] Hoechst cancels plans to list its Marion Roussel unit

[03] Krupp 1996 profit slumps 59% in 'difficult environment'

[04] Reed Elsevier shows 11% increase in 1996 earnings

[05] SBC Warburg is being probed over alleged mishandling of stock transactions

[06] Grolsch posts nearly flat 1996 profit and says earnings will decline in 1997

[07] France outlines its conditions for the sale of Thomson-CSF

[08] Swiss Bank Corp. swings to $16.6 million loss for 1996

[09] Chernomyrdin vows to bring young liberals into the government

[10] Lafarge profit drops 21% after poor returns from asset sales

[11] Marsh & McLennan agrees to buy Johnson & Higgins for $1.8 billion

[01] France and Germany reaffirm their intentions of being founders of EMU

Following a Franco-German summit on European Monetary Union in Lyon, French Finance Minister Jean Arthuis said that he and his German counterpart, Theo Waigel, agreed their countries' gross domestic product this year each should grow by around 2.5%.

He also reiterated statements made in the past few months that France would reduce its 1997 budget deficit to 3% of GDP, from 4.1% in 1996.

'After slow growth in 1996 of 1.3% in France and 1.4% in Germany, there is a favourable outlook today for both countries to have growth near 2.5% this year,' Arthuis said during a news conference after the meeting.

Arthuis, along with Bank of France Governor Jean-Claude Trichet, met for two hours with Waigel and Bundesbank President Hans Tietmeyer.

Waigel echoed Arthuis' comments and stressed that both France and Germany are on target to meet the Maastricht Treaty's fiscal requirements in 1997.

Asked about the possibility that it will be necessary to delay the start of the single currency, Waigel said any discussions of a delay are 'useless.'

'It's now the beginning of March,' Waigel said, and Germany and France both 'have a chance' to qualify for 1999 currency union.

In recent weeks, some German officials have openly questioned whether Germany will be able to meet the 3% maximum deficit target set by the Maastricht Treaty on EMU. Market fears that EMU would be delayed sparked disturbances in European exchange rates and bond yields.

Tietmeyer, asked whether there was any contingency plan in the case that the criteria aren't fulfilled, said only that Germany is 'trying seriously' to meet the criteria.

Waigel and Arthuis also noted that the two countries agree on an unofficial 'stability council' that would co-ordinate economic policy among EMU members.

Although the stability council will have no legal or binding authority over the member states or over the European Central Bank, both Tietmeyer and Trichet were quick to reaffirm that the ECB must and will have full independence to conduct monetary policy.

Arthuis added, however, that there would be 'close co-ordination between the stability council and the European Central Bank' to ensure that they do not work at cross purposes.

Arthuis also reaffirmed his commitment that European economic and monetary union would begin on Jan. 1, 1999, and that France and Germany would be among the founding members.

As far as other potential founding members of EMU, Bundesbank President Tietmeyer said 'we must wait and see' which countries fulfil the criteria required by the treaty to join.

He said all European Union member states want to participate in the euro - as the currency is to be called - at the first possibility, but he stressed that the 1997 criteria must be fulfilled in a strict and lasting manner.

Turning to foreign exchange markets, Arthuis said that

he was untroubled by recent volatility in 'peripheral' European currencies, such as the Italian lira and the Spanish peseta, versus the mark and the franc.

'I have confidence that each country will do its utmost to maintain stability,' Arthuis said.

When asked about the dollar's exchange rate versus the franc and mark, Arthuis reiterated that 'exchange rates must now consolidate around their current levels.'

That sentiment was echoed by Tietmeyer, who said that he felt the admonition from the Group of Seven meeting in Berlin in February for dollar consolidation had been heeded. He warned, however, against an excessive, unwarranted correction in the dollar.

[02] Hoechst cancels plans to list its Marion Roussel unit

But the German drug giant said the decision doesn't reflect a change in its strategy.

Management board chairman Juergen Dormann said that bringing the unit to the market was no longer viewed as 'in the best interests of our shareholders.'

But the markets appeared to disagree, and sceptical analysts said they might consider downgrading the company's stock.

The company's shares started trading on the Frankfurt Stock Exchange down 10% from it's Tuesday close.

Hoechst stressed that it would continue to strengthen its drugs division and was receptive to potential mergers or other takeovers.

Dormann also said that Hoechst might accelerate the pace of its restructuring. As part of its restructuring into a holding company, Hoecsht last year shed several businesses. Analysts said that now that it had sold its specialty chemicals group to Clariant, Hoechst would likely sell its generic drugs business Copley soon.

Hoechst said it was considering a variety of options for the business, especially after the Copley unit incurred a loss of 19 million marks ($11 million) in 1996.

This was the second day of disappointing news from Hoechst.

On Tuesday the company posted a 2.5% sales decline and a 29% jump in pre- tax profit, largely due to earnings from divestments. Analysts had though that earnings would surge as much as 50%% and that the company might even double its dividend.

Instead, Hoechst raised its payout just 7.6%.

[03] Krupp 1996 profit slumps 59% in 'difficult environment'

The German steel and engineering group reported net profit of 208 million Deutsche marks ($122.3 million), while 1996 group sales rose 2% to 24 billion marks from 1995 levels.

But the company said it expects earnings to be higher in 1997. Krupp also said it will pay an unchanged dividend for 1996 of 5 marks a share.

for 1996, unchanged from year-earlier levels.

The company said it experienced a 'difficult business environment' in 1996, and said extraordinary items related to its loss-making high-grade and profiled concrete steel division burdened earnings.

It said all its divisions but steel achieved a positive result on ordinary activities in 1996. The rise in sales was due to the first-time consolidation of units AST, Uhde and Bachmann. Net borrowings were reduced by 500 million marks to under 2.9 billion marks, representing a halving of debt since 1993. The world-wide workforce totalled 69,608 at year-end, up from 66,352 due to the consolidations.

[04] Reed Elsevier shows 11% increase in 1996 earnings

The Anglo-Dutch publishing giant also said that it's still on the acquisition trail. 'With a strong financial position we are well placed to capitalise on opportunities to acquire businesses that fit Reed Elsevier's strategic and financial criteria,' the company said.

Reed Elsevier cited improved sales from continued operations and first-time contributions from acquisitions as the primary factors for the rise in pre- tax profit to £805 million ($1.29 billion).

In an interview, Deputy Chairman Nigel Stapleton said that sterling, at current exchange rates, would have a negative 5% impact on 1997 pretax profit compared to a neutral impact last year. 'We're only seeing (sterling's exchange rate) come back after a couple of years of sterling weakness in the first couple of years after the merger,' Stapleton said.

On the company's acquisition plans, Stapleton said the company would certainly be active in a tactical way to enhance existing titles. He also underlined Reed Elsevier's ability to do something bigger. 'We have the resources to do a strategic deal,' most likely in either the business or professional publishing markets.

The company's parent, Reed International said it plans a two-for-one stock split.

[05] SBC Warburg is being probed over alleged mishandling of stock transactions

The U.K.'s Securities and Futures Authority's investigation is focusing on sharp declines in French share prices last October when SBC Warburg executed the sales for the trust.

The SFA said it's investigating the events of Oct. 30, when SBC Warburg acquired an estimated £300 million of shares from Kepit, which was run by Kleinwort Benson's investment management arm, and sought to sell the shares into the market.

SBC Warburg acknowledged that its selling ''actively contributed to adverse price moments in some of the shares of the portfolio concerned.'' But the investment bank said Kepit didn't lose money in the share trades.

A mistake by an SBC Warburg trader is thought to have triggered the collapse in the price of several shares and resulted in the SFA investigation.

SBC Warburg stressed that it ''ensured the client wasn't disadvantaged in any way'' and that it launched an internal investigation that led to disciplinary action. It wouldn't detail what actions were taken, but a newspaper report said Peter Corrigan, SBC Warburg's head of French equities, resigned, and an equity derivatives trader also left.

Officials at Kleinwort Benson Investment Management, which controlled the £500 million Kepit fund, weren't available to comment.

The fund was put into liquidation in October after a majority of shareholders chose to liquidate it due to underperformance. Swiss Bank Corp., which reported its earnings today, didn't report any provision for the loss.

[06] Grolsch posts nearly flat 1996 profit and says earnings will decline in 1997

The Dutch brewer showed a 1.7% gain in net profit to 59.9 million guilders ($31.2 million), but the earnings were boosted by a pre-tax gain of 9.2 million guilders. Without the extraordinary gain, which the company said was 'due to a co-operation agreement,' profit would have dropped 8% to 53.9 million guilders.

Looking ahead, Grolsch said it doesn't expect to match 1996 earnings in 1997, partially because of the one-off gain it posted for 1996. Grolsch also said its 1997 results will be dampened by poor price margins, and higher investment and interest costs.

Grolsch said it saw insufficient room in several important beer markets to raise selling prices. 'Also the higher investment level, of great importance to the company's future, will lead to higher depreciation costs and increasing interest charges,' said Grolsch.

But Grolsh said it was fairly positive about activities in the Netherlands as well as Poland. It said it will maintain a firm market position in the Netherlands and will see Polish exports increase. Currency fluctuations will also have a positive influence on 1997 results, the company added.

Investment costs, Grolsch said, will reach 87 million guilders this year, excluding Polish activities, but the company added that it isn't currently considering seeking market capital.

On the Amsterdam Stock Exchange, Grolsch shares plummeted more than 18.5% in the first half hour of trading, following a 2% rise on Tuesday ahead of the earnings report.

'The summer weather of 1996 was very mediocre compared to the tropical summer of 1995,' Grolsch said. It added the northwestern European beer markets had shown signs of saturation, resulting in lower margins in 1996.

Grolsch said exports had risen in 1996, but added the positive impact of this on results had been limited as it had been accompanied by a significant rise in costs, notably of sales and personnel. Turnover rose 7.3 percent to 676.8 million guilders.

[07] France outlines its conditions for the sale of Thomson-CSF

Individual candidates, or those leading a joint offer, must also be able to show annual consolidated sales of the same amount in the defence electronics sector.

In the case of a joint offer, each partner must have annual sales of at least 500 million francs in defence electronics.

The government said that bidders must place their offers by March 28 and that it hopes to pick the winner by June 30.

The winner will would become the majority owner by acquiring more than 50% of Thomson-CSF's capital and voting rights.

The Thomson-CSF privatisation is part of the state's aim to restructure the defence industry around a few 'national champions' as a step towards wider European consolidation.

In February, the government decided to privatise Thomson-CSF in a direct placement with a set of conditions.

In deciding against a public share offering, the government set the stage for a probable rematch between defence group Lagardere SCA and telecommunications giant Alcatel Alsthom.

Despite the lack of restrictions on nationality, Lagardere and Alcatel are seen as the most likely candidates, partly because they both studied Thomson-CSF's financial situation when they presented bids in the failed privatisation attempt last year.

Last year the government was set to sell Thomson SA, which includes Thomson- CSF and Thomson Multimedia, a consumer electronics company, to Lagardere and the Daewoo Group. But the government backed down amid a flurry of criticism when it was accused of selling a French technological prize on the cheap to a South Korean company.

[08] Swiss Bank Corp. swings to $16.6 million loss for 1996

But SBC is optimistic that a 'sustained improvement in performance,' can be achieved thanks to a number of measures designed to streamline operations.

In addition, SBC said the biggest contribution to group profits came from SBC Private Banking, which increased net profit by nearly 19% to 1.063 billion francs. The investment banking division SBC Warburg reported net profit growth of 55% to 820 million francs and generated an ROE of more than 16%.

Net interest income rose 7% to 2.951 billion, fee and commission income increased by 31% to 4.374 billion and trading income was up 30% to 3.046 billion, SBC said.

'Against a background of low interest rates and attractive financial markets, Swiss Bank Corp is optimistic about the future progress of its businesses,' SBC said in a statement.

SBC aims at achieving a return on equity of 'at least' 10% in its domestic division, Marcel Ospel, the group's chief executive officer said.

Group net profit in January and February this year was significantly higher than in the whole first quarter 1996, Ospel said. However, against a background of still healthy financial markets, 'it wouldn't be cautious,' to take these as a trend for the whole year, Ospel warned.

[09] Chernomyrdin vows to bring young liberals into the government

President Boris Yeltsin demanded the reshuffle Tuesday after accusing the government of failing to deal with pressing economic problems, including mounting back wages, faulty tax collection and corruption.

Since starting the painful market reform in 1992, Yeltsin has repeatedly pledged to improve the Russians' lot, but has often been unable to deliver and placed blame on his ministers for the shortcomings. After months of illness, Yeltsin has been increasingly active in recent weeks, and on Tuesday told Chernomyrdin to reorganise the government.

'Candidates to the new Cabinet have not been chosen yet. (But) it is not in our interests to drag out this process,' said Chernomyrdin.

Chernomyrdin and his new top deputy, Anatoly Chubais, will keep their jobs in the Cabinet, but many other ministers and top officials are expected to be fired. The number of ministries and federal agencies is due to be cut, according to Chernomyrdin.

The premier said 'professional market economy experts, firm adherents of the presidential course of reforms' will be brought into the government, according to the ITAR-Tass and Interfax news agencies.

'As a rule, they are not older than 50, but they already have state administration experience, are ready to work on the government program for 1997-2000 and are able to implement it,' he said. While changes are being made, 'the government is working and will go on working,' the prime minister added.

Meanwhile, Yeltsin's Cabinet overhaul earned a sharp rebuke in the State Duma, parliament's lower house, which is dominated by Communists and nationalists.

The Duma approved in principle a resolution condemning Yeltsin's step as continuation of radical economic reforms that have impoverished millions of Russians and placed the country 'under dictatorship...of foreign capital.'

'The reshuffle...once again testified to the desire of the current authorities to continue the destructive course that has already brought Russia to the verge of catastrophe,' the resolution said.

The document singled out Chubais, Yeltsin's chief of staff appointed on Friday to the new post of deputy premier in charge of economic reform.

Seen in the West as a strong free market advocate, Chubais is widely disliked in Russia as the architect of its privatisation program that has enriched many insiders and gave other Russians vouchers to substitute for state property.

The appointment of Chubais is a 'direct challenge to the public opinion of Russia,' the resolution said.

[10] Lafarge profit drops 21% after poor returns from asset sales

The French construction materials group said net profit fell to 1.85 billion francs ($105.4 billion) from 2.35 billion francs as gains from the sale of assets dropped to 116 million francs from 619 million in 1995.

Lafarge chairman Bertrand Collomb predicted a 'significant' increase in 1997 net profits, saying sales should rise more than 10% to around 39 billion francs.

Sales in 1996 rose 6% to 35.3 billion francs from 1995. The company left its net dividend at 10 per share francs. It also predicted its 1997 investments would be between 6 billion francs and 8 billion francs. In 1996, investments rose to 7 billion francs from 5.9 billion.

Operating income in 1996 rose to 4.7 billion francs from 4.04 billion.

Lafarge said on Wednesday net profits fell more than 21 percent in 1996 . Lafarge said net attributable profit was 1.85 billion francs ($320.8 million) in 1996, down from 2.35 billion in 1995, while its operating profit rose 3.2 percent and sales climbed 6.2 percent. Lafarge chairman Bertrand Collomb said its growth strategy had raised both sales and operating profit in 1996 and its ongoing policy of expanding and strengthening its presence in international markets boded well for the future. 'And from 1997, I expect a strong increase in our profits,' Collomb said in a results statement. Lafarge said it expected 1997 turnover to be about 39 billion francs, up more than 10 percent from 35.2 billion. Collomb told a news conference although the proportion of the group's sales in France had fallen from nearly 50 percent in 1988 to 32 percent now, the proportion of French sales was still too high.

[11] Marsh & McLennan agrees to buy Johnson & Higgins for $1.8 billion

The move, the latest in wave of consolidations, means the international insurance industry is now dominated by two American superbrokers: Marsh and Aon Corp. which bought Alexander & Alexander Services for $1.2 billion in December.

Under the merger agreement, Marsh & McLennan will pay 33% of the purchase price in cash and 67% in Marsh & McLennan common stock. Marsh & McLennan said it will finance the cash portion of the purchase with bank financings and commercial paper.

The agreement was approved by Johnson & Higgins shareholders and Marsh & McLennan's board of directors. The companies said the transaction is expected to close in the second quarter, subject to customary closing conditions.

A new company, J&H Marsh & McLennan Inc., will be formed to manage the combined insurance services operations and will operate as a Marsh & McLennan unit.

Standard & Poor's said it placed Marsh & McLennan's 'A-1'-plus commercial paper rating of Marsh & McLennan Companies on CreditWatch with negative implications, based on the company's decision to acquire insurance broker Johnson & Higgins for $1.8 billion in stock and cash.

S&P said: 'While this action is reflective of the overall trend in the brokerage industry, it represents a departure from Marsh & McLennan's traditional growth strategies. Given the competitive market conditions,

Standard & Poor's believes that Marsh & McLennan will face some challenges in its ability to fully absorb Johnson & Higgins' revenue base and capitalise on its franchise.

Many insurance brokerages have seen their commissions stagnate or dwindle in the past decade as insurance premium rates, the basis for the commissions, have slumped.

Analysts said the combined Marsh & McLennan and Johnson & Higgins should be able to cut costs by shutting redundant operations and cutting overlapping support services.

Marsh & McLennan, which last year had revenues of $4.1 billion, has about 27,000 employees and does business in more than 80 countries.

Johnson & Higgins, with 9,000 employees and 145 offices around the world, had total revenues of $1.2 billion in 1996, primarily from its insurance- related operations.

Marsh & McLennan Chairman and Chief Executive A.J.C. Smith will be chairman and chief executive of the new unit.

Marsh & McLennan expects to name David A. Olsen, chairman and chief executive of Johnson & Higgins, its vice chairman at the closing of the transaction.

Marsh & McLennan said it will name its president and chief executive, John T. Sinnott, a vice chairman of J&H Marsh & McLennan, along with Richard H. Blum, a director of Marsh & McLennan, Richard A. Nielsen, vice chairman and chief operating officer of Johnson & Higgins; and Norman Barham, president of Johnson & Higgins.

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