European Business News (EBN), 97-04-08

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

Page last updated April 8 1630 CET

CONTENTS

[01] Hoechst abandons abortion drug, partly because of continuing controversy

[02] German unemployment falls 0.5% in March

[03] Credit Lyonnais sale threatened

[04] East German farmers to repay communist debt

[05] Tesco plans European expansion

[06] Jefferson Smurfit profit halves after paper prices plunge

[07] Corporate and Economic briefs

[01] Hoechst abandons abortion drug, partly because of continuing controversy

'We have divorced ourselves completely from RU-486 as part of the business of tidying-up and giving new strategic direction to the company,' a Hoechst spokesman said.

A spokeswoman for the company's Roussel-Uclaf unit said Hoechst decided RU 486 was a difficult product, in part because of its role in the ongoing abortion debate. Roussel Uclaf spokeswoman Catherine Euvrard said Hoechst had looked for a partner or a buyer but was unable to find any corporation willing to invest in the product.

She noted that its pharmaceutical unit, Hoechst Marion Roussel, had become increasingly vulnerable to consumer boycotts because of its ties to the drug, particularly in the U.S. where there is a contentious abortion debate.

The pill was acclaimed by women's rights groups but became the target of fierce protests from anti-abortionists.

Roussel-Uclaf said it will transfer all patent rights on mifepristone, to Edouard Sakiz, one of the doctors who invented it. Roussel-Uclaf said Tuesday that Sakiz has created a company which will take over all manufacturing, marketing and distribution of the drug. The product is currently marketed in France, the U.K. and Sweden.

Roussel-Uclaf said it already transferred the U.S. patent rights to The Population Council in New York.

The company said it transferred the rights to Sakiz without remuneration. RU-486 sales now total about 20 million francs ($4 million) a year, he said. Sakiz didn't have an estimate for initial investment costs, but said that he would provide the funding.

[02] German unemployment falls 0.5% in March

The Federal Labour Office said the unemployment rate, which is based on unadjusted data, fell to 11.7%, compared with 12.2% in February. The number of unemployed workers fell by an adjusted 15,000 from February.

Meanwhile, German Federal Labour Office President Bernhard Jagoda said the March fall in unemployment was mainly due to milder weather, and that the economy continued to give little impulse to jobs creation. His comments were prepared for delivery at a news conference on the March unemployment data.

'There were many job losses in the early part of the year above all because of bad weather....The exceptionally mild weather in March made rehiring workers in outdoor jobs easier,' he said.

[03] Credit Lyonnais sale threatened

Speaking in a radio interview, Mr. Arthuis said it was 'out of the question that the state participate in a recapitalization' of Credit Lyonnais. While Mr. Arthuis has said repeatedly that he wanted to limit the cost to the French taxpayer of a bailout of Credit Lyonnais, Finance Ministry officials say it is the first time he clearly rejected its appeals for fresh funds.

The government's firm stance will come as good news to Credit Lyonnais's competitors, which have long complained that aid to the bank distorts competition, and to the European Union's executive commission, which oversees all state aid and is eagerly awaiting details of a new restructuring plan for the bank.

But it could complicate the government's aim of selling off the bank as fast as possible. No date has been set, but Credit Lyonnais Chairman Jean Peyrelevade has said several times that the bank needs a recapitalization of at least 10 billion French francs ($1.76 billion) if it hopes to find a buyer. Without a recapitalization, he has argued, the bank's capital- adequacy ratios will be too low to be attractive to investors despite its big French retail network.

Mr. Peyrelevade didn't return phone calls seeking comment on Mr. Arthuis's statement. But a bank official, who requested anonymity, said Mr. Arthuis's stand was 'a bit suprising' and 'calls into question our privatization.'

Finance Ministry officials said Monday that their stand was dictated in part by Credit Lyonnais's financial recovery. The bank last month said 1996 net profit rose to 202 million francs, from 13 million francs a year earlier. While these profits are paltry by international standards, they mark a clear improvement for the bank, which lost 21 billion francs between 1992 and 1994 because of reckless expansion during the 1988 to 1993 tenure of former Chairman Jean-Yves Haberer.

[04] East German farmers to repay communist debt

The ruling is a setback for the east German farmers and politicians who argued that these were not debts in the capitalist sense. They claim that communist planners forced them to take credits unnecessarily which were then used to finance non-agricultural works - such as road-building, schools and public offices in their villages. The co-operative farms say they may face ruin if forced to foot the bill. But the court said that conditions for repayment should be easier given the debts' unusual nature.

The Federal Constitutional Court rejected an appeal by a collective farm in Saxony-Anhalt state which said the unusual debt burden violated its members' rights to their property.

'The cooperative farms' duty to repay their old debts does not have any such effect,' it said in its ruling. In Bonn, the opposition Social Democratic Party (SPD) criticised the ruling as 'not forward-looking' and said it would lead to further unemployment in eastern Germany. Eastern leaders also claim Bonn should shoulder the farm debts in the same way in which it paid off loans taken out by east German industrial firms and local governments.

Reinhard Hoeppner, the SPD premier of Saxony-Anhalt, said forcing the farms to repay the debts would ruin many of them and allow rich westerners to buy up the land.

'Money will then flow from east to west. That cannot be a healthy structure, ' he told German Radio. While DG Bank in Frankfurt, which took over six billion of the 10 billion marks in debt in 1990, said the ruling ended a long period of uncertainty for the farming sector.

'We are pleased that the issue has been cleared up,' a spokesman said.

The court added that the federal government should in the year 2000 review the special conditions for repaying these debts to see if they were working well or keeping the farms saddled with an unacceptable level of debt.

The German-German Unity Treaty, hammered out at high speed in 1990, classified the debts as valid credits and allowed collective farms to repay them only after they showed a profit. In a special ruling meant to limit the burden, farms in the black only have to make payments up to a limit of 20 percent of their annual profits.

Bonn has already shouldered many debts left over from east German industry and local governments by diverting them into a repayment fund independent of the government budget. However, problems over land ownership are still unresolved and overshadow the progress made in the east. East Germany's farm sector has shed most of its 820,000 workers and only kept 150,000, at great social cost.

Land-privatising agencies must still settle disputes over more than 1.1 million hectares (2.7 million acres), a third of total arable land and forest. The Bonn government is also fending off compensation claims by former owners of estates belonging to the Prussian nobility that were seized by Soviet authorities between 1945 and 1949.

[05] Tesco plans European expansion

Tesco also said that in the first four weeks of the 1998 financial year, U.K. sales were up 10% over last year. Sales at the U.K.'s leading retailer rose 15% to £14.98 billion in 1997, from £13.03 billion last year. Operating profit rose 6.9% to £774 million from £724 million a year ago.

Tesco said the petrol price war which was waged during the first half of the year cost the company £35 million and impacted U.K. profit growth by about 5% and the operating margin by about 0.3% for the full year.

'This is a good start in a competitive environment,' the company said, adding that inflation had fallen through the second half of last year from 3.5% to just 1% currently. Chairman Lord MacLaurin, who steps down in June, said the results reflected Tesco's policy of offering 'extremely keen prices and first-class service.'

Tesco said operating margin was reduced by 0.4% to 5.8% as a strong performance in food offset the cost of a petrol price war, which impacted profits growth in the UK by about five percent and margins by 0.3%.

Tesco, which paid £630 million for the Irish supermarkets of Associated British Foods in March, said increasing returns from new stores and extensions had helped to increase return on capital employed to 17.1% from 15.7% in 1994.

[06] Jefferson Smurfit profit halves after paper prices plunge

A 'precipitous' slump in worldwide paper product prices during the year caused the drop, Irish-based international paper and packaging company said, adding that profit was in line with market expectations.

With prices remaining weak, Chairman Michael Smurfit said 1997 would be another difficult year for the industry. But he said he believes that prices have 'bottomed out' and that an industry-wide recovery could start in late 1997.

Smurfit said the industry's difficulties had been caused by over investment by some suppliers and predicted further consolidation.

'Clearly the market will not accept for long an industry which, as a recent survey has shown, didn't earn its cost of capital in seven of the last ten years,' he said.

The company will continue its strategy of expanding through acquisitions rather than adding to already-crowded capacity, he said.

Smurfit said its dividend for 1996 - 4.2 pence, a 5% increase on the 4 pence dividend of the previous year - reflected the company's confidence in the industry.

[07] Corporate and Economic briefs

Shares in Tarmac have climbed 8.7% in early trade after the company said it's completed the largest asset swap in British construction industry history, traders said. Last year, Tarmac exchanged its U.K. housebuilding arm for Wimpey international contruction business, minerals division and a balancing payment of £21 million. The total agreement was worth £600 million. In its 1996 results statement, released earlier in the session, Tarmac said it's integrated Wimpey's businesses into its own structure and restructured its business to focus on heavy building materials and construction services. The rationalization helped Tarmac increase its pretax profit 13% to £75.5 million.

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