European Business News (EBN), 97-05-15

European Business News (EBN) Directory - Previous Article - Next Article

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

Page last updated Thu, May 15 6:52 PM CET

CONTENTS

[01] U.S. core inlation rate rises 0.3%

[02] German EMU targets on course despite tax shortfall

[03] Kuwaiti government to sell $2 billion of BP stock

[04] BT posts 6% rise in profit for 1996

[05] UK retail price inflation falls below target 2.5% in April

[06] German retail sales fall 3%

[07] Generale des Eaux sales up 7%

[08] BG first quarter profit rises 10%

[09] BMW sales rise 17% for first five months of 1997

[10] BASF first quarter profit grows 3.5%

[11] Airbus signs $1.5 billion deal with China

[12] Irish Prime Minister calls general election for June 6th

[13] SBC Warburg will buy Dillon Read for $600 billion

[14] Corporate and Economic Briefs

[01] U.S. core inlation rate rises 0.3%

U.S. consumer prices posted a small 0.1% rise in April as a result of declining energy and food costs, leaving the key measure of inflation at a 2.5% rate over the last 12 months, the Bureau of Labor Statistics said.

Excluding the volatile food and energy components, the core Consumer Price Index rose 0.3%, bringing the increase in the measure in the 12 months ended April to 2.7%.

U.S. Treasury prices have fallen sharply following the release of the April CPI and weekly jobless claims data. And the dollar is higher after the release of the figures - an indicator of employment costs and a key force behind inflation - countered recent optimism that inflation was not enough of a threat to merit another increase in interest rates by Federal Reserve policy makers.

A 1.5% drop in energy prices and 0.2% decline in food and beverage costs helped restrain the April increase in the overall CPI. Transportation costs fell 0.4% in April.

Within the broader energy index, fuel oil prices dropped 1.8%, while gasoline and natural gas costs fell 2.6% and 3.0%, respectively. Only electricity costs posted an increase of 0.5%.

Analysts polled last week by Dow Jones Newswires had predicted a slightly larger advance in the overall April CPI with an average forecast of 0.2%. Those same analysts predicted the same rate of increase for the core rate.

Meanwhile, the industrial production report was weaker than analysts had expected, due largely to a number of strikes across U.S. auto plants.

Economists said the data point toward less robust growth in the second quarter of 1997, after the first quarter's muscular 5.6% performance. 'This report shows some moderation from the first quarter pace,' notes Paul Kasriel, chief economist at Northern Trust.

But whether recent signs that growth may have lost some stream will continue remains an open question, Kasriel and other economists say. The bigger question, however, is whether evidence of softening activity will keep the Fed from boosting rates again next week.

[02] German EMU targets on course despite tax shortfall

Waigel demanded strict interpretation of the criteria for Europe's economic and monetary union even though German eligibility for EMU is troubled by its budget problems.

Earlier, the finance ministry said tax revenue in 1997 for the country's combined federal, state and local governments is expected to be an additional 18 billion Deutsche marks less than estimated in November 1996.

In recent weeks he has said he wants to leave open the option of imposing federal spending constraints to close budget gaps. Now it seems that his plan to revalue Bundesbank gold reserves is set to go ahead due to the desperate plight of Bonn's finances. But analysts said it would probably find few fans at the central bank.

The finance minister has been putting pressure on the central bank to free up billions of marks in hidden reserves by revaluing gold reserves in order to help fill Bonn's gaping budget deficit.

Frankfurt economists now say that Bonn, which has long insisted on iron- clad guarantees of a stable euro, would probably not now meet the Maastricht deficit criteria meant to ensure the single currency is as strong as the mark.

'Germany will certainly not make the 3% deficit criterion,' said Stefan Schneider at Paribas in Frankfurt. 'He will have to eat his words and say that a number slightly above 3% will be fine too.'

But Waigel retorted '(The shortfall) does not lead to a fundamentally different appraisal in relation to the Maastricht criteria.'

[03] Kuwaiti government to sell $2 billion of BP stock

The Kuwait Investment Office in London said that it was selling the stock as part of 'portfolio rebalancing exercise.' The BP holding had grown 'to represent a disproportionate part' of a state-controlled investment fund called the Future Generation Fund of Kuwait, the statement said. Kuwait continues to hold a 6.3% stake in the company and 'will remain a significant investor,' it said.

Traders in London said they expected the block trade - one of the largest on record - to be completed by early today. Goldman was lining up buyers in the U.S., Europe and Asia at an offering price of 716 pence ($11.70) for each ordinary share of BP traded on the London Stock Exchange.

BP trades on the New York Stock Exchange in the form of American depositary receipts, or ADRs. Each ADR is equivalent to 12 ordinary shares.

As word of the transaction started to circulate around block-trading desks, investors rushed to sell BP's ADRs. That selling pressure created an order imbalance that caused the New York Stock Exchange to halt trading the shares. After trading resumed, the ADRs closed down $3.75, or 2.6%, at $141.25. About 8.4 million shares changed hands, more than 20 times the average daily volume of 378,400.

If completed, the trade would probably be the largest ever conducted by a single trading house and without any advance marketing. Carl Icahn, the corporate raider, unloaded $2 billion of Texaco Inc. stock in 1989. That sale, then the biggest-ever block trade, was conducted through a few firms, traders recalled.

Earlier this year, Mr. Icahn sold his 19.9 million-share stake in RJR Nabisco Holdings Corp. to Goldman for more than $730 million. Goldman bought the stock outside the U.S. after markets there closed and resold it before the markets opened the next day. Neither the original sale nor the resale showed up on the 'tape,' the record of regular trades in New York Stock Exchange-listed stocks.

Goldman officials declined to say how much they paid the Kuwait Investment Authority for the stock.

Terry LaMore, BP's director of U.S. investor relations, said Kuwait notified BP of its plans. The company wouldn't comment on a shareholder's investment decisions, he said.

Kuwait owned as much as 21.6% of BP in the late 1980s, before the British government, concerned about a foreign state owning such a large stake in the United Kingdom's biggest company, ordered Kuwait to reduce its holding, Mr. LaMore said. BP bought back more than half of the shares Kuwait held, he said. Since 1987, BP's share price has nearly tripled, he added.

[04] BT posts 6% rise in profit for 1996

Despite absorbing price cuts worth over £800 million, BT full year sales rose 3.4% to £14.935 billion, aided by gains in overseas operations, exchange line rentals, mobile communications and other services.

Meanwhile, Sir Iain Vallance, the chairman, said that the company owed it to its shareholders to try to challenge legally any windfall tax on its profits imposed by the new Labour government.

'If we are stung in a big way for this tax and if it can be challenged legally, we owe it to our shareholders to challenge it,' Vallance told BBC radio.

But he added that the company would be 'very sad' to start a partnership with Labour on such a footing.

[05] UK retail price inflation falls below target 2.5% in April

Underlying inflation, which excludes mortgage-interest payments, fell to 2.5% in April from 2.7% in March. The fall in the underlying rate, which the new government is retaining as its inflation target, exceeded the 0.1- percentage-point drop forecast by economists.

The previous Conservative government committed itself to reducing underlying inflation to 2.5% or less by the end of the last Parliament, although most economists thought this was unlikely to happen until summer at the earliest.

The annual all-items rate of inflation fell to 2.4% in April from March's 2.6%. Economists had forecast a decline to 2.5%.

Inflation is falling largely because sterling has risen just over 17% since August, according to the Bank of England's trade-weighted index. This has made imports cheaper and has subdued demand for exports, easing capacity pressures in industry.

The figures showed that goods-price inflation fell to 1.7% in April, its lowest level since November 1994, from 2.0% in March. Motoring costs fell 0.2% on the month in April, in contrast to a 0.8% rise in April 1996. This helped to cut the annual rate of inflation in the sector to 5.2% from 6.2% in March. Prices of gasoline and used cars both fell on the month.

However, economists warned that the overall figures conceal worrying signs of price pressures in the service sector, driven by robust domestic spending. Service-sector inflation stood at 3.3% in April for the third month in a row, its highest level in two years.

[06] German retail sales fall 3%

In the first three months of 1997, retail sales were down a real 2% from the previous like period, the agency added. That's a nominal decline of 1%. A comparison of March retail sales to February was not immediately available.

The statistics agency provided some specific sales decreases among retailers in March compared to a year earlier.

Retail sales for catalogue retailers, without store facilities, in March fell a real 12%; retail sales of food, drink and tobacco fell a real 7%; pharmacy sales were down a real 1%.

[07] Generale des Eaux sales up 7%

The company said that after reworking to eliminate changes in group structure and exchange rate fluctuations, sales would have shown an increase of 7%.

Sales in France increased by 4.2% on a comparable basis to 26.9 billion Francs, while sales outside France rose by 14% to 12.7 billion Francs, representing more than 32% of total sales, compared to 28.2% in the first three months of 1996.

Generale des Eaux said revenue from construction and public works contracts was disappointing, declining by 6.4% in France and by 3.3% outside France.

[08] BG first quarter profit rises 10%

Chairman Richard Giordano said first quarter results are distorted by the effects of the spin off of BG and its sister company Centrica from British Gas in February this year.

Giordano said BG's TransCo gas distribution company made a current cost operating profit of £509 million, up £1 million in the quarter. Historical cost operating profit was £631 million, up £12 million from the same period a year ago.

Giordano said the BG group will be substantially affected by the outcome of the Monopolies and Mergers Commission inquiry into industry regulator Ofgas' price proposals for Transco.

'The company hopes the MMC's conclusions and recommendations can be rapidly and accurately translated into new licence conditions, thereby ending the prolonged period of uncertainty and providing regulatory stability for Transco,' said Giordano.

He said the outcome of the inquiry will be key to determining the level of dividend BG will be able to pay.

Giordano said provision has yet to be made for the U.K. windfall tax which the Labour party has proposed to levy on privatized utilities.

[09] BMW sales rise 17% for first five months of 1997

The company said group sales rose 17% in the first five months to 24.3 billion Deutsche marks ($14.4 billion) compared with the same year-earlier period. Group deliveries were up 7.6%.

The luxury carmaker said group deliveries rose to 497,000 vehicles for the period from January to May compared with 461,800 in the year-ago period.

'We expect stable developments in the number of cars sold to continue for all of 1997,' BMW chief executive Bernd Pischetsrieder said in the text of a speech at the meeting.

But the company repeated its warning that sales growth rates could be impacted later in the year because of especially strong sales in the second half of 1996.

BMW badged cars alone saw deliveries climb 10.5% from January to May to 288, 000 units.

Deliveries of cars carrying the BMW emblem have been boosted by strong demand for the 5-Series saloon, but have been hurt by more modest sales for the smaller 3-Series which is nearing the end of its production run.

BMW said it expected its British unit, Rover Group, to improve its international position with the introduction of new models and an improved sales organisation.

The company also said its aircraft engine unit, BMW Rolls-Royce, should learn this year if it will win an order to build engines for a 100-seat Chinese aircraft.

[10] BASF first quarter profit grows 3.5%

BASF also said its group sales for the first quarter were 13.4 billion marks, up 12% from a year earlier.

The Ludwigshafen-based company said it expects group sales to increase to more than 50 billion marks in 1997, exceeding 1996 group sales of 48.8 billion marks.

'We expect sales and earnings to continue at a high level in the coming months,' BASF said, adding that orders received confirm these growth prospects.

[11] Airbus signs $1.5 billion deal with China

Airbus, a European consortium, had been scrambling to secure a major aircraft order that could be timed with the visit of French President Jacques Chirac. Beijing was also eager to show its appreciation for the recent warming in Sino-French ties.

Despite the hefty Airbus order, Boeing's 250 airplanes operating in China still account for the dominant chunk of the market. It has signed contracts valued at $1.2 billion this year.

The Seattle-based company, which claims 70% market share in China, had extended Chinese aviation officials a counter-offer to the Airbus proposal. A spokesman conceded earlier today that they wouldn't be signing the deal they sought.

'We are still working very diligently talking with our Chinese clients,' said Jinde Chen of Boeing China Inc. He added the company was confident it could protect its market share from an Airbus challenge.

'This year will be a Boeing year, and at the end of the year, sales figures will be way ahead of Airbus.'

[12] Irish Prime Minister calls general election for June 6th

Earlier, Bruton had formally announced to the Irish parliament that national elections would take place on June 6.

Bruton told a press conference that his coalition government, which has ruled in a so-called rainbow coalition since late 1994, was a 'stable partnership'.

Bruton, who is leader of the Fine Gael party, said the government would continue to create new jobs at record levels if it were re-elected. Bruton said that his government had boosted employment levels by around 120,000 since 1994.

Bruton issued a 21-point program election program with his government allies, Labour Party leader Dick Spring and Democratic Left leader Proinsias de Rossa.

[13] SBC Warburg will buy Dillon Read for $600 billion

The deal comes just a day after Dutch banking company ING Group withdrew from talks to buy the 75% of Dillon Read that it doesn't own.

In a news release, New York-based Dillon Read said its operations and staff will be incorporated into SBC Warburg and a new investment bank would be created, known as SBC Warburg Dillon Read.

'The transaction will allow us to significantly broaden the range of products and services we can offer, while enhancing career opportunities for our staff,' said Francois de Saint Phalle, vice chairman and chief operating officer of Dillon Read.

The agreement still must receive federal regulatory approval.

Under the deal, SBC Warburg will increase its U.S. presence in corporate finance, mergers and acquisitions and U.S. equity and debt underwriting. Dillon Read said the transaction will give it a new platform to enhance its equity and high-yield areas.

SBC Warburg had revenues of $3.5 billion in 1996 and profit before taxes of $759 million, representing 44% of the Swiss Bank's profit before taxes. SBC Warburg has 9,000 employees, 2,000 of whom are based in the United States.

Founded in 1832, Dillon Read has 730 employees spread among offices in New York, Boston, San Francisco, Dallas, London, Paris and Tokyo.

After the acquisition is complete, Dillon Read President and CEO Franklin W. Hobbs will serve as head of corporate finance worldwide of SBC Warburg Dillon Read and will be based in London. De Saint Phalle will be deputy head of equity capital markets worldwide and co-head of U.S. equities.

The purchase is the latest in a series of takeovers and mergers on Wall Street in recent months. Already this year, Bankers Trust New York Corp. bought Alex Brown Inc. for $1.7 billion and Morgan Stanley and Dean Witter, Discover and merged in a $10 billion deal.

Yesterday, ING Groep said it had withdrawn from talks on the purchase of Dillon Read and because the two parties disagreed on how they would work together once the deal was done.

ING Group, based in Amsterdam, is the largest Dutch insurance/banking firm. ING Barings, the investment-banking arm of Groep, already owns a 25% stake, which Dillon Read, based in New York, has the option to buy back by the end of June.

[14] Corporate and Economic Briefs

Switzerland's April index of producer and import prices fell 0.9% from the prior year and increased 0.1% from March, the government's statistics office announced.

Britain's second biggest clothing retailer Burton Group said profits were up 22.7% in the first half and the second half sales were up 11% overall. The retailer, owner of Debenhams, Top Shop and Dorothy Perkins, reported first half profits of £108.1 million ($67.1 million), up from £88.1 million a year ago. Sales, excluding mail order, rose to £1.17 billion from £1.09 billion.

Bank Austria said first quarter operating income rose 7.9% from the year- ago period to 10.47 billion schillings ($881.3 million). First-quarter group operating profit rose 20% to 3.57 billion schillings. The company said it will raise its dividend for 1996 to 12 schillings from 10 schillings a year ago. The bank confirmed that 1996 group net fell 39% to 1.59 billion schillings. Operating income rose 4.4% to 20.53 billion schillings.

UK spirits company Guinness's Chairman Tony Greener said Thursday he expects to see higher underlying growth in sales during 1997 than in 1996. He added, however, that 'if the present position continues, adverse exchange movements will limit progress when expressed in sterling.' Greener's comments were made at the company's annual shareholders meeting and reiterate those made in Guinness' annual report in March.

United News & Media said trading in the year to date has been in line with company expectations. Speaking at the annual general shareholders meeting chairman Lord Stevens of Ludgate said revenue is 'showing satisfactory growth.'

Anglo-Norwegian engineering and maritime concern Kvaerner, says the Anglo Japanese Turkish Consortium, a consortium which it heads, has been selected as the preferred bidder for a $1 billion bridge project in Turkey. The consortium was chosen as the preferred bidder for the Izmit Bay crossing project in Turkey by the Turkish Ministry of Public Works and Settlement.

Xerox expects double-digit earnings growth in 1997 and beyond due to the continued growth of its digital products. In a press release Xerox said revenues from digital products now account for 31% of total revenues. The company said since February, it has introduced a variety of digital black- and-white and color copiers, printers and production publishers, several of which are modular in design so that they can be easily upgraded for added features and use on office networks. Last year Xerox earned $1.2 billion, or $3.49 a primary share and $3.31 a diluted share, on revenues of $17.38 billion.

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

European Business News (EBN) Directory - Previous Article - Next Article