European Business News (EBN), 97-04-28

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

Page last updated Mon, April 28 6:57 PM CET

CONTENTS

[01] European markets largely ignore G-7 warning that dollar is too strong

[02] C&W Communications closes barely changed in first day of trading

[03] Boeing net more than doubles on 70% sales gain

[04] France's Trichet says single currency is 'unstoppable'

[05] Yeltsin orders reforms in electric and telecoms industry

[06] Daimler-Benz Aerospace looks to buy Siemens' Diehl group

[07] Chiroscience ends financial year in strong cash position

[08] Kvaerner is in talks to build $5 billion off-shore base for U.S. Navy

[09] Henkel says sales rose 11% in first quarter

[10] Enso buys 50% of Holtzmann

[11] Economic and Corporate Briefs

[01] European markets largely ignore G-7 warning that dollar is too strong

The dollar is continuing its climb against the Deutsche mark and yen, and the currencies strength has given support to the stock markets which were under pressure from a steep fall on Wall Street Friday. Government bond markets largely ignored the warning about the dollar to focus instead on domestic concerns.

Foreign exchange traders said the G-7 communiqué, only a touch more threatening than that released after the Berlin G-7 meeting in February, reduced immediate market fear that central banks would act to stop the dollar's rise.

The currency market 'had been looking for something more explicit,' said David Coleman, chief economist at CIBC Wood Gundy in London. 'Instead, there were vague warnings about how exchange rates could cause external imbalances,' he said.

The G-7 said that foreign exchange rates should reflect economic fundamentals and noted that 'excess volatility and significant deviations from fundamentals are undesirable.'

Its statement added: 'In this context, we emphasised the importance of avoiding exchange rates that could lead to the re-emergence of large external imbalances.'

CIBC's Coleman said the communiqué wasn't enough to reverse current market trends. 'There's nothing to suggest any alarm about current dollar levels, ' he said.

Two months earlier, the G-7 made similar disapproving noises about excessive currency movements. At the time, the dollar was trading about Y122.50 and DM1.6600.

The dollar continued to strengthen anyway since February, then this weekend's vague communiqué merely spurred traders to take the currency even higher. The strong dollar was bolstering the European stock markets: At 1140 GMT, the blue-chip Eurotrack 100 index of European stocks in London was trading 2.74 points lower at 2194.05.

In domestic markets, Frankfurt's DAX index was down 0.1%, the Paris CAC 40 index was 0.1% higher and Milan's MIBtel index fell 0.2%. London's FT-SE 100 index added 6.8 points to 4376.5.

European government bonds, meanwhile, largely ignored the weekend warning about the dollar's rise, instead moving more on domestic events. French government bond traders said early gains were largely related to the dollar, but a spate of profit-taking soon followed the open.

[02] C&W Communications closes barely changed in first day of trading

The stock see-sawed during the day, rising to 306 pence and dropping to 298 pence before closing in London at 299.5, barely changed. Volume totaled 7.3 million shares.

In New York, the stock was trading at middayunchanged at $24-5/8. CWC is composed of Mercury, the U.K. fixed line telephone business of Cable & Wireless as well as the cable system operations of NYNEX CableComms and Bell CableMedia. Earlier, BCM made an agreed takeover of Videotron, which operated cable franchises in south London as well as a business telecoms franchise for the City financial district.

Cable & Wireless PLC will exercise effective operating control through its 52.6% stake in CWC. NYNEX CC and Bell Canada International will hold respective 18.5% and 14.2% stakes in the new company.

Publicly traded shares, in comparison, constitute only 14.7% of CWC's total stock. The London Stock Exchange requires a free float of 25% for inclusion in the FTSE 100 Index.

Public shareholders in NYNEX CC and BCM will receive new CWC shares. Cable & Wireless shareholders will not receive any new shares, though their shares will ultimately give them majority ownership of CWC.

'Overall you have a story that means CWC should be worth more than the sum of the parts,' Campomagnani said. Operating synergies, he noted, should enhance cash flow, while strategic synergies should see the new company develop a higher market share.

At a market capitalization of £4.5 billion, he said the assets are fairly valued, though he added it will take time to realize the synergies. As well, CWC will spend heavily - perhaps £100 million GBP annually - to develop the new company's brand.

However, traders are divided about whether the limited liquidity of CWC stock will be an important technical factor helping to boost its market performance.

Traders who are bearish on the stock argue that U.K. institutions don't have to buy CWC because it won't have a FTSE 100 listing.

Noted one trader: 'A lot of the institutions that wanted to establish positions did so through Bell CableMedia and NYNEX CC.'

Now that the flotation is out of the way, analysts will be eyeing Global One, a partnership of Deutsche Telekom, France Telecom and Sprint of the US, which needs access to Britain and has been in talks with Cable and Wireless about the CWC venture. but the limited size of the free float of CWC shares means the stock won't feature in the FTSE 100 Index.

[03] Boeing net more than doubles on 70% sales gain

Boeing's net jumped to $313 million, or 87 cents a share, on revenue of $7.32 billion in the quarter.

For the full year the company said it expects sales to rise to the '$33 billion range,' from $22.7 billion in 1996.

Boeing also recorded income in the first quarter of $64 million related to an accounting change at an employee-benefit trust fund.

Boeing said aircraft deliveries jumped to 68 aircraft during the quarter, up from 40 the year before. Shipments in the year-earlier period had been hurt by a strike in the final quarter of 1995. Boeing said it expects to deliver 90 aircraft in the current three months.

The company also said it expected the world's airlines to take delivery of $1.1 trillion worth of new aircraft over the next 20 years.

But Boeing said competition for new orders ''remains intense.'' The company expects total market for new orders of high-value aircraft of 100 seats or more for growth and replacement markets to average about 700 to 800 units annually over the next decade.

The company said it plans to defer further effort on larger versions of the 747 aircraft and to emphasise 767 and 777 development.

Partially offsetting the increase in Boeing's income were higher research and development expense for the commercial aircraft and defence and space segments, increased interest expense from the Rockwell acquisition, development expenses related to two joint ventures, and a higher income tax rate.

[04] France's Trichet says single currency is 'unstoppable'

Bank of France governor Jean-Claude Trichet said Europe had presented its plans for launching the new Euro at the G7 talks and there was no question of it not going ahead.

The G7 however, urged Europe to act to bring down its high unemployment - at record levels in France and Germany .

Trichet said European countries had also reassured their partners they would find a way to head off currency market speculation in the period leading up to January 1999. Meanwhile, French Socialist Party leader Lionel Jospin said that if his party wins the forthcoming elections, France will not enter the single currency without conditions.

He also wants a flexible view of the budget deficit goal of 3% of gross domestic product, preferring to look at the criterion as a 'trend' instead of a fixed figure.

These comments came after a newsletter reported that Jospin and Germany's Social Democratic Party leader Oskar Lafontaine were discussing easing a key condition for European monetary union.

The weekly newsletter says the talks were aimed at raising the Maastricht Treaty ceiling of 3% of GDP for budget deficits in 1998 to 3.5% or even 3.7%.

[05] Yeltsin orders reforms in electric and telecoms industry

At a news conference announcing the decree, First Deputy Prime Minister Boris Nemtsov said the reform programme ensures that the state retains control over these key natural monopolies and that their national supply networks aren't broken up.

At the same time, the order calls for stimulating competition in order to bring down production costs and opens the way for companies in the electric industry to raise new capital by selling shares.

Nemtsov said the text of the decree won't be released for several days, but noted that it is based on a draft restructuring program put together earlier in the year by reformers in the Economics Ministry.

In the case of natural gas monopoly RAO Gazprom, Nemtsov said, 'the mail goal is to ensure reliable supplies of gas to consumers and to lower prices.'

Specifically, he said, the order mandates that:

• the government will retain its 40% equity stake in the company indefinitely;
• the government will work to strengthen Gazprom's international position and boost its share price;
• Gazprom will lose its monopoly right to develop new gas deposits, which instead will be allocated at tenders open to competitors;
• Gazprom must offer equal access and competitive rates on its national pipeline network to all producers, giving oil and other companies the opportunity to compete in the gas business, which it so far has denied them,
• and Gazprom must ensure transparency of its finances, with detailed annual financial reports.

[06] Daimler-Benz Aerospace looks to buy Siemens' Diehl group

Daimler-Benz Aerospace management board member Werner Heinzmann said the company was interested in the Siemens unit as part of a restructuring of Daimler's defence and civil systems business area.

He said Daimler plans to enter the offer phase with Siemens in the next few weeks.

Heinzmann expected other bids to come from both domestic and foreign competitors, although Daimler should have political support for keeping the defence technology in Germany. Heinzmann said Daimler has a clear interest in the Siemens business because it was an 'outstanding fit for us'. Siemens' Diehl group, a maker of guided missiles, could be brought together with Daimler's own activities in this area. Daimler has already had talks with Diehl about cooperation, he said.

Siemens for several months has been looking for a joint venture partner or buyer for the unit, which includes Siemens Plessey in Great Britain. The business has been hurt by reductions in defence spending,

[07] Chiroscience ends financial year in strong cash position

Later this year, Chiroscience expects to complete further clinical trials on its long-acting anaesthetic Levobupivacaine, with a European regulatory filing in December and a submission to the US Food & Drug Administration in April 1998.

'The scheduled registration of Levobupivacaine and its planned market entry in 1998 make it a key milestone,' said Chiroscience in a statement to the market.

In a telephone interview with Dow Jones, Chiroscience's Chief Executive Dr John Padfield said he's 'extremely confident' about Levobupivacaine's chances of success.

The new drug is a cleaned-up version of parent drug, Bupivacaine, and was developed using chiral technology which enables Chiroscience to identify those elements of a drug which achieve the desired results and separate them from those causing unwanted side effects.

Last year, Chiroscience bought a U.S.-based company with a very different area of expertise - Darwin Molecular Corp. of Seattle, which specialises in gene-based research and associated technologies.

'Merging these skills with Chiroscience's expertise in chiral technologies, chemistries and clinical developments has created a unique company with wide-ranging drug discovery and development capabilities,' the company said.

Padfield said the merger is progressing 'extremely well.' He said the company has initiated a number of joint programs, with scientists in Seattle and Cambridge collaborating well together.

The chief executive also said Chiroscience is organising a discovery and technology update for buy- and sell-side analysts on May 30 in London and June 2 in New York. He added, it will be the first time the company discusses its merged pipeline in any depth.

[08] Kvaerner is in talks to build $5 billion off-shore base for U.S. Navy

Kvaerner hopes to prepare a study for building a 1,600 metre floating runway and troop carrier, in collaboration with Boeing of the U.S. The total cost of the project including construction, weapons systems, and avionics is estimated at $5 billion, according to some reports.

'A feasibility study contract isn't of great importance financially, but strategically it could be very important, said Ytreeide.

However, she said it was impossible to comment on Kvaerner's stake of a future contract, saying such details have yet to decided.

Kvaerner has operations in shipbuilding, offshore construction, mechanical engineering, and pulping technology. The Oslo-based group is Europe's largest shipbuilder and ranks among the five largest in the world.

[09] Henkel says sales rose 11% in first quarter

The German speciality chemicals group didn't provide specific figures for the first three months.

Chairman Hans-Dietrich Winkhaus said the company is optimistic about the full year.

The company said it has experienced no negative market or customer reactions relating to the take-over adhesives company Loctite.

Henkel also added that the restructuring of its chemical products division would be a goal in this and the coming year, the group said.

[10] Enso buys 50% of Holtzmann

Enso will purchase a further 39% of the German company in 1998 and eventually intends to acquire Holtzmann's entire share capital. The acquisition of Holtzmann will strengthen Enso's market position in Europe as well as its position as a waste paper consumer.

'Holtzmann has a very good position in the German market,' said Jukka Harmala, Enso's chief executive officer.

'They also have well-established clients and important ties to the publishing trade.'

The responsibility for Holtzmann's operations will be passed on to Enso with immediate effect.

As a result of the acquisition Enso expects gross investments to reach around 4 billion markka in 1997. The debt equity ratio isn't seen to be affected due to the recent sale of the company's forest chemicals business and the target remains 45%.

Including synergy benefits the acquisition meets Enso's 12% target for return on investment.

In 1996 Holtzmann's sales were 818 million Deutsche marks ($481.2 million), with an operating profit of 193 million marks.

Enso will carry out already-planned investments which will cost around 300 million markkaa. The investments are aimed primarily at improving quality and raising capacity.

The purchase of the shares has been approved by Germany's anti-cartel authorities. No approval from the EU is required.

[11] Economic and Corporate Briefs

Denmark's wholesale price index for March posted a month-on-month rise of 0.1% and a year-on-year rise of 1.2%, Denmark's Statistik, the national statistics agency, said Monday. Both increases were slightly above market expectations. Local analysts had expected wholesale prices to stay flat on February's level, while showing a yearly rise of 1.0% to 1.1%. In February, the index posted a month-on-month rise of 0.3%; the annual increase was 1.4%. Of the various categories of goods in the wholesale price index, the largest increase was seen in raw materials for agriculture, where prices rose 1.4% on the month.

Zodiac, a company specialised in aerospace equipment and inflatable leisure goods, said its net profit for the six months ended Feb. 28, 1997, fell to FF19.48 million ($3.3 million) from FF26.15 million in the similar period a year ago due to higher operating costs. In a public filing, the company said that better sales in its aeronautics division more than compensated for seasonal weakness in its leisure goods activity. Zodiac said that better aeronautics activity, combined with the dollar's rise against the franc, would allow for an increase in the company's full year net profit, compared with FF174.1 million for the year ended August 31, 1996.

Racal Network Services Group, a unit of Racal Electronics, has won two outsourcing contracts worth £19 million ($ 31 million) to supply telecommunications services to British Customs and Excise, the company announced. A fixed infrastructure telephony service contract will provide voice services to over 19,000 Customs employees based at 300 offices across the U.K. and is worth about £15 million over three years. Racal will also supply its new managed-data encryption service to Customs employees, allowing them to transmit data securely from desktop to desktop across work groups throughout the U.K. This contract is worth £4 million over five years and includes round-the-clock management and monitoring of the system.

British Biotech signed a three-year research agreement with Edmonton's SynPhar Laboratories to develop new drugs aimed at treating tissue- destructive diseases, British Biotech said. The potential new drugs are known as cysteine proteinase inhibitors. Cysteine proteinases are enzymes, and overactivity in them is believed to be linked to such diseases as rheumatoid arthritis, osteoarthritis, osteoporosis and cancer. British Biotech will fund the research, which will build on SynPhar's continuing research to design and synthesise small molecules for a range of disease targets. British Biotech gets the global rights to develop and market any CPIs that result from the alliance, while SynPhar retains co-marketing rights in Japan and co-promotion rights in Canada. No other financial arrangements have been agreed between the two companies yet.

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

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