European Business News (EBN), 97-06-17

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

Page last updated Tue, June 17 6:06 PM CET

CONTENTS

[01] EU leaders may not finalize Maastrict II until Wednesday

[02] Philips and Lucent merge their consumer communications businesses

[03] KPN plans to split into two separate companies

[04] Motorola plans $13 billion new satellite venture

[05] US Consumer and Production data points to steady, non-inflationary growth

[06] G-7 may allow Russia to join Paris Club

[07] EMI Group to return $800 million to shareholders

[08] Competition Chief Van Miert voices concern over details of the Boeing/McDonnell Douglas merger

[09] BSkyB's chief executive Sam Chisholm steps down

[10] Finland reviews its ownership of Neste, Imatran Voima

[11] Corporate and Economic Briefs

[12] Paris Airshow Briefs

[01] EU leaders may not finalize Maastrict II until Wednesday

''There will be considerable changes to the treaty,' Patijn said. ''The heads of state are working through the document page by page. That takes time.'

While Patijn said he is confident the so-called Maastricht II treaty will be finalized, he didn't know if it would happen later Tuesday or even early Wednesday. The two-day summit was due to have been concluded late today.

''So far I haven't seen any subject where there is a block,'' he said. However, he cautioned that ''nothing is agreed until everything is agreed.'

Some of the toughest issues remaining unsolved before lunch included countries' voting rights in the E.U. Council of Ministers and integration of western Europe's defense into the European Union.

''We haven't made too much progress on these issues this morning and the new text on the (E.U. defense) issue creates major problems for us,'' Danish foreign minister Nils Helveg Pedersen told a press briefing.

Sweden also voiced objections to the defense text, but remained convinced that an overall agreement on the revised treaty was possible. ''Some of the toughest question remain and we will probably be running late,'' said senior foreign ministry official Gunnar Lund.

[02] Philips and Lucent merge their consumer communications businesses

Philips will own 60% of the venture and Lucent will own 40%.

The companies expect to complete the transaction by October.

The new company will develop, manufacture and market digital and analog cellular phones, corded and cordless phones, answering machines, screen phones and pagers. It will be headquartered in New Jersey with regional offices around the world.

Michael McTighe, managing director of Philips Consumer Communications, will become chief executive of the new company.

Carly Fiorina, executive vice president of Lucent and president of its consumer products unit, will become a director of the new company and will take on another senior management role at Lucent when the transition is complete.

[03] KPN plans to split into two separate companies

In a written statement, KPN said the division 'is a logical step in view of KPN's development in the last nine years.'

Weinand Heineken, analyst with Bank Labouchere in Amsterdam, said the share price is now 'moving in the direction of the estimated break-up value' of KPN.

Analysts have in recent weeks been busy calculating what KPN's shares would be worth if the company were to split, and Heineken said most estimates lie just above 80.00 guilders.

KPN said it will work out its plans for the split in the second half of this year, and aims make the split in the spring of 1998,

In the last year, KPN said it was investigating the option of splitting up the company, and there has been much speculation about such a move by analysts.

Since its partial privatisation in 1989, PTT Post had developed into a global player with annual sales of 13.5 billion guilders ($6.9 billion), while PTT Telecom's annual sales had reached 14.3 billion guilders, it said.

[04] Motorola plans $13 billion new satellite venture

Plans for the system, disclosed in a federal regulatory filing and reported by the Wall Street Journal, confirm Motorola's intent to become a major satellite systems manufacturer, and pose a direct challenge to wireless pioneer Craig McCaw and his Teledesic, a proposed $9 billion high-speed satellite system whose investors also include Bill Gates, Microsoft's chairman.

John Pientka, vice president and general manager of Motorola's advanced systems division, said the Schaumburg, Illinois, company is not gunning to put McCaw out of business. 'There's a lot of room in the satellite business, ' he said, 'it's entering a whole new phase.'

But Teledesic officials disagreed. 'This is about Motorola trying to wreck Teledesic, because they hate the idea of Boeing competing as a satellite provider,' said Russell Daggett, president of Teledesic, Kirkland, Washington.

Motorola has been a key equipment supplier for other businesses of McCaw, but recently lost out to Boeing on bidding to build the 288-satellite Teledesic network. 'This is about monopoly profits for Motorola producing satellites,' added Daggett.

McCaw, previously an outspoken supporter of Motorola's products and executives, was terse. 'This just doesn't make any sense,' he said. He did not elaborate.

Pientka replied: 'We think competition grows the market.'

Motorola's system, called Celestri, is believed to be the first that will use a combination of satellites that orbit at low altitudes with ones that operate at high altitudes and retain a fixed location in relation to the Earth. Motorola plans to employ 63 satellites orbiting 900 miles over the earth, plus one or more geosynchronous satellites orbiting in fixed positions 22,300 miles away.

The system would deliver data to the ground at variable rates, between 64, 000 and 155 million bits per second, offering speeds that would allow transmission of commercial-quality video. Motorola plans to launch its first Celestri satellites in 2001, with service to begin in 2002.

It is the third major low-orbit system for Motorola. Its first, a $5 billion global voice and paging system called Iridium, has launched five of its 66 satellites into orbit, and plans to put another seven up on a Russian rocket on Wednesday.

Motorola's M-Star is a high-bandwidth system for international corporations, expected to cost $6.1 billion and use 72 satellites. Parts of M-Star would be incorporated into the Celestri configuration, though the systems would remain separate.

[05] US Consumer and Production data points to steady, non-inflationary growth

The report gives the Federal Reserve added breathing room to refrain from raising interest rates when central bank policy-makers meet July 1-2.

The Consumer Price Index has risen just 2.2% in the last 12 months ending in May, the best performance on a year-over-year basis since February 1987.

Figures also released today included the U.S. industrial production numbers, which rose a seasonally adjusted 0.4%, in May. The figure was led by output of autos, commercial aircraft and high-technology equipment, the Federal Reserve Board said.

The May increase followed a revised rise of 0.3% in April and a revised 0.4% rise in March. The Fed previously reported April industrial production as flat, while it had said output rose 0.6% in March. A Dow Jones Newswires survey of 17 economists published Monday found a median estimate of a 0.2% rise in May industrial production.

Excluding the unpredictable food and energy components, consumer prices rose 0.2% in May, a gain that brought the rate of increase for the first five months of 1997 to 2.6%. In the last 12 months, the so-called core CPI rose 2.5%. That was the best 12-month performance since June 1966.

The modest May increase in consumer prices reflected further declines in energy prices, which fell 2.4%. Within that broader category, gasoline costs plunged 4.1%, while natural gas prices fell 2.9%, fuel oil fell 0.5%, and electricity fell 0.4%.

The May increases met economists' expectations. A Dow Jones Newswires' survey of 17 economists published last Friday found a median estimate of a 0.1% rise in the May CPI.

[06] G-7 may allow Russia to join Paris Club

According to the source in Paris, Christian Noyer, head of the Paris Club, will visit Russian officials this week, ahead of the G-7 summit, in an attempt to come to a deal. 'There is a good possibility something could be done by Denver - something like an agreement in principle ... which would be enough to get Russia on board while some of the details would be left to be worked out later on.'

In late May, Noyer, too, said there is a good chance for an agreement in principle on Russia joining the Paris Club at the Denver summit. The source added, however, that while good progress has been made in recent weeks on technical issues, some of problems that have stalled Russia's attempt to join the club remain.

At Monday's Paris Club meeting, 'there was a better understanding of the main issues: what level of discount will be used for Russia's claims and how military claims will be treated ... but there was no real movement,' the source said.

The Paris Club demands also include a commitment by Russia to adhere to club rules - such as a bar against side negotiations with debtor countries.

On Monday, U.S. Treasury Secretary Robert Rubin said he expected no formal agreement on Russia's joining the club at the Denver summit.

'I don't anticipate that will be announced in Denver,' Rubin said, though he did reaffirm the U.S.' pledge to see Moscow's formal entry this year.

[07] EMI Group to return $800 million to shareholders

This is equal to 114.5 pence per existing ordinary share. EMI shares gained ground on the news.

The return of capital is being proposed following a detailed review of the group's financial structure and the current investment plans of EMI Music and HMV, taking into account the group's ability to generate significant cash flows. The board has concluded that a higher level of debt funding for the group would be appropriate and believes that this would reduce the overall cost of capital for the group and thereby enhance shareholder value.

The proposed return of capital, which will be financed from borrowings, will take place by way of a reorganization of EMI's share capital and a bonus issue of new B Shares. Shareholders will have an opportunity to elect to have their B Shares redeemed by EMI soon after issue. At the same time, it is proposed to split EMI's ordinary shares to improve their marketability.

EMI said at its full year results in May it was evaluating methods to return up to 10% of the group's market capitalization to shareholders.

[08] Competition Chief Van Miert voices concern over details of the Boeing/McDonnell Douglas merger

Speaking to a European Parliament committee, commissioner Miert said: 'We have to get a remedy from the company that satisfied us.'

Van Miert's comments come after last week's competition hearings in Brussels during which Boeing and McDonnell Douglas executives argued their merger's case. Executives from European aircraft maker Airbus Industrie also spoke at the hearings.

Van Miert noted the Boeing-McDonnell merger was highly politically sensitive, but insisted that his resolve hasn't weakened in any way. 'We have to deal with this case because it has repercussions for our market,' he told Parliament members. '(Boeing) happens to be a very big and powerful company and some people are saying we should back off.' He added that he had little intention of doing so, however.

An E.U. advisory group on competition is due to discuss the U.S. aircraft companies' merger on July 4, while the Commission has until July 31 to make a final ruling on the merger. Van Miert has indicated previously that Boeing will have either to scrap or substantially modify so-called sole- supplier agreements concluded with various U.S. airlines.

The agreements tie the airlines to Boeing for a period of up to 20 years.

[09] BSkyB's chief executive Sam Chisholm steps down

The London Stock Exchange marked down BSkyB shares 7.5 pence at 580.5 pence on the news. Chisholm took over at Sky when it was losing £14 million a week and turned it into a company making almost £5 million a week.

In an interview with Dow Jones following the news David Chance, Chisholm's deputy, who had been regarded as his likely successor, said that he too may leave his position by the end of the year. A source close to the company said that he is most likely to become a consultant to the pay tv broadcaster.

A spokesman for BSkyB said Chisholm is asthmatic and had been advised by doctors to step down from running BSkyB.

He denied that Chisholm's departure followed a rupture with Murdoch. 'Sam has built up the business and it's taken its toll on him. It's business as usual.'

The satellite television operator, in which Rupert Murdoch's News Corp has a 40% stake, named Mark Booth, chief operating officer of Japan's JSkyB, to replace Chisholm as from January 1, 1998.

[10] Finland reviews its ownership of Neste, Imatran Voima

The review will evaluate the options for broadening the shareholder base and the structural alternatives for joint development of the two companies. The review will be prepared together with the managements of Neste and IVO.

Neste said its Board of Directors welcomes the initiative by MTI 'to maximize the opportunities and competitiveness of the Finnish energy industry at a time when the energy markets in the Nordic countries and in the E.U. are liberalizing.'

Neste said it has identified the significant growth potential that gas- fired electricity production can offer to the company, and noted it is of great importance that Finnish companies take advantage of the liberalized energy markets.

Neste and IVO have core competencies across the whole energy chain, the release said. The combined strengths of the companies will offer maximum access to growth opportunities in the Nordic region, Russia and the Baltic area and will allow a significant position to be built in the gas and electricity markets of north and central Europe.

The Board of Neste considers that it is very important that any proposed solution is in the interests of all Neste's shareholders.

Neste is an oil and gas company and IVO is the leading electricity group in Finland, supplying heat and power to its industrial retail customers.

[11] Corporate and Economic Briefs

U.K. utility Thames Water reported a 62.7% rise in its full-year pretax profit to £371.8 million ($594.9 million) from £228.7 million a year earlier. The results came in at the mid-point of analysts' forecasts of between £356 million and £385 million. Thames said it will be recommending a final dividend of 23.2 pence to bring the group's total dividend to 34.4 pence, compared with 28.3 pence in the previous year. Chairman Sir Robert Clarke said: 'Thames Water has had an excellent year. Our core Utility business in London and the Thames Valley continues to make good progress. Following the successful implementation of our strategic review last year, the non-regulated activities we retained are earning good profits.'

Siemens Nixdorf Informationssysteme, the large computer division of Germany's Siemens, said its sales rose 11% in the first eight months of fiscal 1997, to 9.4 billion Deutsche marks ($5.4 billion). Growth was led by sales outside Germany, which climbed 14% to around 3.7 billion marks in the October through May period. Domestic sales were up 8% to about 5.7 billion marks. New orders to the division also climbed 11% in the eight- month period, to 10.0 billion marks, a company spokesman confirmed. He didn't provide comparison figures for the year-earlier period.

Woolwich Building Society, Britain's second largest mutually owned mortgage lender, could open at 336 pence a share when it converts to a bank and commences trading on the London Stock Exchange July 7. According to initial 'gray market' bidding at City of London spread betting agency I G Index, the share price range opened Tuesday at 332 pence a share to 340 pence. That's nearly 80% above the mid range valuation of 187.5 pence a share seen for Woolwich from a valuation in December commissioned by Woolwich and undertaken by Schroder and BZW. It would also give the newly listed bank a market capitalization of £5.4 billion ($8.6 billion). Woolwich would become the seventh largest bank, ahead of Royal Bank of Scotland Group, capitalized at £5.1 billion.

Britain's public sector borrowing requirement was £3.96 billion ($6.3 billion ) in May, above forecasts for a deficit of £3 billion. In April, the PSBR, the amount the government needs to borrow to bridge the gap between its income and expenditure, was £76 million rather than the surplus of £36 million provisionally estimated. This means the cumulative deficit for the first two months of the 1997-98 financial year, which began in April, was £4.03 billion, as the data, published jointly by the Office for National Statistics and the Treasury, show. This was down from £6.17 billion a year earlier. However markets hardly reacted to the news, waiting for US data, due later.

[12] Paris Airshow Briefs

DHL International has signed a letter of intent to acquire three freighter- converted A300B4-200 aircraft, Airbus Industrie said. The A300s will be leased from Pinnacle Aircraft Leasing, a U.S.-based aircraft leasing company, Airbus said. No price details were given.

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