European Business News (EBN), 97-06-20

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

Page last updated Fri, June 20 7:01 PM CET

CONTENTS

[01] US issues second request for information on proposed Guinness, Grand Met merger

[02] France, Germany agree to manufacture Tiger helicopter

[03] Germany criticised for currency revaluation plan

[04] The German gpvernment announces plans to increase 1997 deficit

[05] Stet confirms talks with AT&T

[06] BA confirms purchase of $1 billion of new Boeing jets

[07] Demand for U.K. goods improves in June

[08] France's April industrial production rises 3%

[09] Roche says study shows its drug reduces onset of AIDS

[10] Glaxo unsure of Zantac sales due to introduction of generic version by Genpharm

[11] Mitsubishi Estate posts an 11% decline in earnings

[12] Japan's economy continues moderate recovery

[13] Corporate and Economic Briefs

[14] World News Briefs

[01] US issues second request for information on proposed Guinness, Grand Met merger

The company added that the European Union Commission has until 2300 GMT to decide whether it will conduct a second stage enquiry into the proposed merger of Britain's Grand Metropolitan and Guinness. Analysts had expected U.S. authorities to take a close look at the merger, which has been opposed by French luxury goods firm LVMH Moet Hennessy Louis Vuitton, a major shareholder in both firms.

Peter Lucas, drinks analyst at Credit Lyonnais said: 'One reasonable possibility is that LVMH may be looking to get in a position to block the merger at GrandMet's court approved EGM.' The date of the extraordinary general meeting has still to be determined.

GrandMet needs the backing of 75% of shareholders at the meeting and Lucas thinks LVMH may try to raise its stake to as much as 25%.

LVMH's share purchase disclosure, which came after the close of London trading yesterday, has pushed both Grand Met and Guinness shares lower.

LVMH already owns 14% of Guinness and Bernard Arnault, LVMH's chairman, is a non-executive director on the drinks giant's board. He has publicly proposed a three-way merger several times.

French luxury-goods maker LVMH said that it raised its stake in food and drinks giant Grand Metropolitan by 125 million shares to 6.3%.

French news reports have suggested that Bernard Arnault, LVMH's chairman, intends to raise his stake in the company to about 10%. Traders said he would then be able to leverage that stake in his attempts to force Grand Met and Guinness to include LVMH's drinks unit Moet Hennessy in their planned merger.

Brokers said investors are not happy LVMH chairman Bernard Arnault is buying stock in Grand Met as part of his bid to foil the planned Grand Met- Guinness merger.

'People don't like that cavalier attitude,' a broker said. 'If he's going to pursue them with legal means, fine, but now he's buying stock.'

[02] France, Germany agree to manufacture Tiger helicopter

The Eurocopter contract provides for the manufacture of an initial batch of 160 helicopters, to be shared equally by France and Germany. Deliveries will start in 2001. The German army will acquire a total of 212 Tigers and the French army 215. The helicopters will be manufactured and assembled at Eurocopter's plants at Donauworth, Germany, and Marignane, France. Cost and work shares between the two countries is on a 50/50 basis. The program is based on fixed-price contracts.

Eurocopter, a joint venture 70% held by French state-owned Aerospatiale and 30% by Germany's Daimler-Benz Aerospace, said the contract represents 1,000 jobs a year in each country for the next three years. The contracts cover the helicopter airframe, the MTR 390 motor from the MTR engine group and anti-tank missile systems. MTR is a consortium of engine makers MTU of Germany, Turbomeca of France and Rolls-Royce.

Also today, Boeing confirmed that British Airways has ordered five Boeing 777 and three 767 jetliners valued at an estimated $1 billion. The jetmaker said in a statement that it will deliver the 767s next April and May, bringing British Airways' 767 fleet to 28 aircraft.

The confirmation was in keeping with Boeing's low profile this week. Industry executives here believe that Boeing is being careful not to attract too much attention in Europe, while the European Commission competition authorities probe its planned $14 billion merger with McDonnell Douglas . A ruling is expected by the end of July.

But the week's biggest winner seemed to be the European aircraft consortium, Airbus, which earlier in the week announced potential new business worth some $3.5 billion.

But while Thursday's announcement seems highly lucrative, it actually encompasses firm orders for only four planes worth up to an estimated $290 million, with the rest of the business comprising commitment to buy but not firm orders.

The four-nation consortium also said that U.S. Northwest Airlines had signed a memorandum of understanding to order 50 A319 jets with options on up to 100 more. If carried through, the orders would be worth around $2 billion, based on an average price of $40 million per plane, representing the bulk of Airbus' airshow announcements.

[03] Germany criticised for currency revaluation plan

Heiner Flassbeck of the Berlin-based DIW economic research institute, accused Bonn of 'accounting tricks,' in a newspaper interview. Germany's public debt will be decreased on paper through a bookkeeping trick, the Neue Osnabruecker Zeitung quotes Flassbeck as saying in today's edition.

And it's not clear yet whether the European statistics agency Eurostat will accept the currency revaluation as a measure to lower the deficit because it wouldn't represent the kind of durable consolidation required by the Maastricht Treaty.

Elsewhere, Rolf Peffekoven, a member of Chancellor Helmut Kohl's council of economic advisors, told television broadcaster ZDF the revaluation won't solve Germany's fiscal problems, even if it does lead to a somewhat lower ratio of public debt and deficits as a proportion of gross domestic product. A sustainable fiscal consolidation is more important, and the revaluation won't contribute to that, Peffekoven stressed.

But Economics Minister Guenter Rexrodt hit back at critics and defended the plan, saying in an interview with German radio that the plan was 'inevitable and legitimate'. FDP economic expert Paul Friedhoff said it was 'not to stop budget gaps but to retire debt'. The deal reflects a compromise allowing Bonn to benefit from the revaluation of foreign exchange reserves but leaves central bank gold reserves untouched until after the scheduled launch of EMU in 1999.

Meanwhile, Germany's broad M3 money supply accelerated again in May, expanding at a seasonally adjusted annualized rate of 7% compared with the average of the fourth quarter of 1996, the Deutsche Bundesbank said.

That is a faster growth rate than the 6.7% posted through April, and faster than the 6.4% forecast by economists. The rate also represents the first acceleration in the annualized growth rate since January.

The Bundesbank said the acceleration was due to faster borrowing by both the private and the public sectors, as well as a slowdown in savings growth. As a result, M3 is still overshooting the 3.5% to 6.5% target corridor set by the Bundesbank for 1997.

M3 is the Bundesbank's preferred leading indicator of inflation in Germany and the only measure for which it sets an official target. It comprises cash in circulation, sight deposits and most forms of savings deposits.

[04] The German gpvernment announces plans to increase 1997 deficit

It was the first time a German official has admitted that Bonn will take up new debt to combat a budget crisis that has raised doubts about whether it can meet the criteria for the euro currency, due to debut Jan. 1, 1999.

As a result of the new debt, to be introduced in an emergency budget, the government 'will accept a higher deficit as an exception' this year, chancellery ministry Friedrich Bohl said in a statement.

But he said Germany 'will surely meet the 3 percent criterion' for the ratio of deficit to gross domestic product 'through budgetary measures already begun, including privatizations.'

Money-raising measures being considered by the government include selling off shares in the Telekom telecommunications giant and the Lufthansa airline as well as privatizing a government-controlled bank.

Chancellor Helmut Kohl has said that any emergency budget would be announced when his cabinet signs off on its 1998 budget, which is scheduled for July 11.

Kohl's ruling coalition has been squabbling for months on how to close Germany's 1997 budget gap, expected to arise from lower tax revenues and the cost of soaring joblessness.

The Free Democrats, the junior partner in the coalition, have threatened to topple the government if Kohl's Christian Democratic Union insists on new taxes to plug the budget hole.

Kohl last month dropped a plan to revalue German gold and currency reserves and channel the profits into government accounts after an outcry from the central bank and Germany's European partners.

[05] Stet confirms talks with AT&T

Stet wouldn't give details on what kind of alliance the two companies hope to form, but according to rumours and news reports, U.S.-based AT&T would take a stake in Stet in its coming share offering this autumn. AT&T wouldn't comment on the rumours.

If a deal is reached, an alliance between Stet and AT&T is likely to take one of two forms, analysts say. Either Stet could enter the AT&T-Unisource venture, an alliance in Europe that sells phone and data services to multinational customers, or Stet and AT&T could form their own bilateral alliance, possibly limited to certain geographical areas.

Stet is a powerful force in Latin America, where it has bought stakes in privatized telecommunications operators and won bids to operate other networks. The Italian company does business in Argentina, Bolivia, Chile and Cuba, and, together with AT&T, is a front-runner in bidding in Brazil to operate a mobile phone network. A Stet consortium is also leading the bidding for Retevision, the Spanish video carrier that will begin operating later this year as Spain's second fixed-line telephone operator.

Unisource is a consortium consisting of PTT Telecom of the Netherlands, Telia of Sweden, and Swiss PTT Telecom. The three companies agreed earlier this month to merge their international networks, in order to strengthen Unisource so it can better compete with rival consortia Global One and Concert Communications Services.

In April, Spain's Telefonica de Espana pulled out of Unisource to ally itself instead with Concert. Analysts say Stet has similar strengths to Telefonica, most notably its foothold in Latin America, and that Stet could easily step into Telefonica's former position in the consortium.

If the Stet-AT&T alliance remains outside Unisource, analysts say Stet could offer AT&T a valuable foothold in Latin America and Spain, if the Stet group wins the bidding there, as well as in Italy and its other markets. Stet is also in consortia that operate or plan to operate networks in Austria, Serbia, the Czech Republic, Uzbekistan, Greece, France, Israel, India and China.

Separately, although AT&T has frequently said it is fully committed to Unisource, the alliance between AT&T and Unisource is rumoured to be weakening - which, if true, could set the stage for AT&T to seek separate alliances.

[06] BA confirms purchase of $1 billion of new Boeing jets

The news comes after Airbus Industrie used this week's air show to announce potential new aircraft sales worth some $3.5 billion, including a deal with Northwest Airlines - in contrast with arch rival Boeing, which has kept a relatively low profile.

Meanwhile, Rolls-Royce said it received an order valued at about $55 million for RB211-524 engines from British Airways for the three new Boeing 767 twinjets.

Rolls-Royce said its order is part of an investment programme by BA. Boeing said it will deliver the 767s next April and May, bringing BA's 767 fleet to 28 aircraft.

Deliveries of 777s will follow in September and continue at a pace of one a month from January to April 1999 when BA's 777 fleet will number 23.

The 777s will be powered by General Electric GE90 engines, while Rolls- Royce RB211-524 engines will power the 767s.

The three new planes will be used to boost capacity on BA's European routes from Heathrow, said Rolls-Royce.

'Today's order is excellent news coming so quickly after the confirmation earlier this week by BA, our biggest civil customer, that it intends to buy RB211-524s for its outstanding additional Boeing 747-400s,' said John Cheffins, managing director of Rolls-Royce Commercial Aero Engines.

[07] Demand for U.K. goods improves in June

But while shackling export growth, the strength of sterling was helping to subdue any increases in goods' prices, in turn warding off any near-term inflationary worries, the report said.

'Despite the small revival in export orders this month, sterling's strength continues to have a damping effect on export demand, and manufacturers' output growth expectations have weakened for the third successive survey,' said Sudhir Junankar, the CBI's associate director of economic analysis.

The CBI said that a negative balance of 3% of firms considered their order books to be normal, which compares with negative balances of 8% in May and 7% in April.

Overseas demand still remains weak but has recovered slightly in June, the CBI said.

A negative balance of 20% of manufacturers reported that export order books were below normal, compared with negative balances of 24% in May and 23% in April.

But he said sterling's appreciation is helping to hold down price rises of manufactured products, 'suggesting that short-term prospects for output price inflation remain highly promising.'

Stock of finished goods reached their highest level in June since May 1996 with a positive balance of 21% of companies reporting stocks were more than adequate to meet demand. This compared with positive balances of 14% in May and 17% in April.

The survey shows that price expectations are the lowest recorded since July last year, with manufacturers expecting domestic prices to be broadly unchanged over the next four months.

The CBI survey was conducted between May 22 and June 11, with 1,167 firms questioned, representing 50 industries and accounting for around half of the U.K.'s manufacturing exports.

[08] France's April industrial production rises 3%

Manufacturing production, which excludes energy and food, rose a further 1.1% in April after gaining 0.4% in March, aided by a strong 2.2% month-on- month gain in the consumer goods sector and a strong turnaround in the automotive sector, which rose 3.5% on the month after falling 0.9% in March.

Also contributing significantly to the month-to-month rise was a strong rebound in energy output, which rose 14.8% on the month after two consecutive months of declines. Food and agriculture industry output was up 2.6%, Insee said, while construction was down 0.7% on the month.

Gains were also noted in the capital goods sector, which rose a further 1% after rising 0.7% in March, and among semi-finished goods, which were up 0.3% on the month.

In March, industrial production was down 0.6%, hurt by a 5.5% decline in energy output, a 0.9% slide in automobile industry output and weakness in the agricultural sector.

[09] Roche says study shows its drug reduces onset of AIDS

Combining Invirase with two other drugs, Hivid and AZT, delayed disease progression and prolonged survival in patients without or with limited prior anti-retroviral therapy by 50%, compared with patients starting therapy with Hivid and AZT alone, Roche said. The company's shares traded up in Zurich on the news.

'The study demonstrates the role of triple therapy with a protease inhibitor - such as Invirase - as the optimal therapeutic approach for patients starting treatment,' Roche said.

A Roche statement said it was the biggest and longest study yet comparing two-drug and three-drug cocktails, covering 3,485 patients between August 1994 and January 1997.

AIDS drugs work by targeting the HIV virus at various stages of its cycle of replication.

Invirase is one of a new generation of drugs called protease inhibitors that attack the virus late in the cycle, causing it to produce immature copies of itself which cannot infect other cells.

Roche said the study found that AIDS broke out in 76 of the patients who used the triple combination but in 142 of those who took the two-drug cocktail.

[10] Glaxo unsure of Zantac sales due to introduction of generic version by Genpharm

During that period, the U.S. Food & Drug Administration has granted Genpharm, the Canadian subsidiary of Merck, exclusive marketing rights to a generic version of the drug, also known as ranitidine hydrochloride. Glaxo said Genpharm would be prevented from selling the generic drug in the U.S. before the expiration on July 25 of Glaxo's U.S. patent on Zantac.

'They can't come on the market before July 25th, and no other company can come on the market before August 29,' a Glaxo spokeswoman said.

For its part, Merck said the ruling would give it a giant lead over its competitors in the generic market for the drug.

Bracing for U.S. competition, Glaxo has been decreasing its dependence on Zantac, which made up 23% of its sales last year. The stomach ulcer drug, also known as ranitidine hydrochloride, had global sales of £1.93 billion ($3.2 billion) in 1996.

Glaxo previously said Zantac sales subject to generic competition in the U.S. and other markets may represent just 10% of total company sales.

[11] Mitsubishi Estate posts an 11% decline in earnings

On a net basis, the company swung into the black with a profit of 38.36 billion yen compared to a loss of 98.97 billion yen the prior year, helped by the sale of the Marubeni Building in Tokyo in April 1996 which produced an extraordinary profit of 65.7 billion yen, a spokesman said. Sales in the land and office building leasing division fell 4.7% last fiscal year to 274.48 billion yen, and operating profit in that area was 9.5% lower at 78.63 billion yen. Sales in the real estate division were 22% higher at 166.50 billion yen, but operating profit was 65% lower at 4.41 billion yen because of property sale-related losses.

Overall group operating profit was 24% down at 62.39 billion yen. For the current fiscal year through March 1998, the company forecast group sales of 570.00 billion yen, pretax profit of 17.00 billion yen and net profit of 12.50 billion yen.

Separately Mitsubishi Electric predicted that its group sales of semiconductors will rise 10% in the current fiscal year ending March 31 to Y530 billion. The company forecast sales would rise a further 19% to Y630 billion next fiscal year.

Mitsubishi said new types of chips would account for Y60 billion of this fiscal year's projected sales, and Y100 billion next year, as the company focuses on chips combining memory and microprocessor functions.

The company also said it would invest Y115 billion in its group semiconductor business this fiscal year, which is roughly the same amount as the last fiscal year.

[12] Japan's economy continues moderate recovery

While personal consumption has declined in reaction to the front-loaded demand ahead of the April 1 rise in the consumption tax, 'the recovery trend of personal consumption does not seem to have been hindered, under the improvement in labour market conditions and income formation,' the report said.

'The focus from now is the Bank of Japan's tankan,' said Yoshihiro Ito, general manager of equity trading at Okasan Securities, referring to the central bank's quarterly survey of business sentiment to be released June 25. Ito said investors will be closely monitoring the state of the domestic economy as reflected in the tankan after Japan's consumption tax was raised to 5% from 3% previously in April.

But traders said the market will remain near current levels for the time being unless new factors emerge to boost the market, including a significant strengthening of the U.S. dollar against the yen or stock- boosting measures from the government such as corporate tax revisions.

Excluding the impact of the consumption tax rise, domestic prices have remained virtually unchanged, the bank said.

The Bank of Japan noted that exports continued to rise, reflecting steady overseas demand and the yen's depreciation over the past year.

The latest report didn't change much from the previous month's report.

[13] Corporate and Economic Briefs

Spain's unemployment rate fell to 21.37% in March from 21.49% in the first quarter of 1997, the national statistics institute said. The number of unemployed, including first-time job seekers, fell to 3.43 million in March from 3.44 million in the first quarter. The March data represent the average unemployment rate during February, March and April, and are intended to indicate a trend for the second quarter that ends June 30. Official second quarter unemployment data are scheduled to be released July 30.

Poland's unemployment rate fell to 11.7% in May from 12.4% in April, the Main Statistical Office reported. The number of unemployed in May stood at approximately 2,043,800, a decline of approximately 87,900 from April.

Denmark's May Consumer Price Index came in showing a 0.7% rise from the previous month and a 2.1% rise from May of last year, according to figures released by Danmarks Statistik, the Danish national statistics agency. Both figures were slightly above market expectations. Local analysts had predicted inflation would show a 0.5% or 0.6% rise on the month and a 1.8% to 1.9% rise on the year.

Bayerische Hypotheken und Wechselbank said it had sold its 14% holding in Isarwerke to Bayernwerk, effective June 30, 1997. A price wasn't disclosed. Bayernwerk is a subsidiary of utility group Viag.

Despite the flat turnover level, Body Shop said it expects group turnover for the full year to improve over last year, stating, 'We would expect turnover growth to resume its pattern of tracking worldwide retail sales.' Body Shop said it opened 25 new stores in the first quarter, bringing the total to 1,516 at the end of May.

A weak yen continued to help boost exports and domestic motor vehicle output at Toyota Motor and Nissan Motor in May over a year before, while the April 1 consumption tax hike splashed cold water on their domestic sales, the two automakers said. Toyota said its domestic output and exports increased 8.2% and 14.5% to 281,050 and 120,317 respectively, while domestic sales dropped 8.8% to 127,777. Nissan said its domestic output and exports rose by 18.3% and 29.8% to 140,435 and 52,158 respectively, while it saw a 13.5% domestic sales drop to 59,791.

[14] World News Briefs

Students from the University of Nairobi went on a rampage after Kenya state television stopped a live broadcast from Kenya's parliament. The trouble started when the government broadcasting arm, Kenya Broadcasting Company or KBC, stopped a live radio and television broadcast from Parliament during a transmission of legislators haranguing Kenya's finance minister. Students took to Nairobi's streets and fought running battles with police. At least seven students and three policemen were injured. Nor was the violence wasn't confined to the streets of Nairobi as legislators in parliament brawled as well. With upcoming elections all but ensuring the eventual victory of current President Moi, the political climate in Kenya is unstable at best, with students and other activists clamouring for radical change in the country.

The IRA-allied Sinn Fein Party called for extra vigilance after police defused a bomb under a member's car. There was no immediate claim of responsibility for the explosives James McCarry found under his car, parked outside his home in Ballycastle, 45 miles (70 km) north of Belfast, Thursday night. But suspicion fell on pro-British 'loyalist' extremists who attack Catholics and retaliate for Irish Republican Army violence.

Over 100 people upset with housing policies protested outside the high- walled compound holding offices for China's senior Communist Party and government leaders. Protesters first staged a sit-in and later stood outside the heavily guarded west gate to Zhongnanhai, a former imperial garden in central Beijing. They demanded to see officials in charge of housing policies. Police outnumbered the protesters. At first they did not interfere, but after about an hour officers dragged away at least one person, a middle-aged man. Others were escorted on to buses. It was not clear if anyone was formally detained or arrested.

A Thai court sentenced an American woman to life in prison after finding her guilty of possessing more than 3 kilograms of heroin last October. Lisa Ann Padilla, 26, a resident of Upland, California, was arrested as she was about to board a flight to Canada with 3,586 grams of the narcotic in her suitcase. She pleaded guilty. Due to her confession, the court sentenced her to life imprisonment rather than the maximum penalty of death by execution, the court ruling said.

A government researcher who received a high radiation dose during an experiment at one of Russia's largest nuclear research centers died at a hospital, officials said. Alexander Zakharov, 42 died of radiation sickness three days after he accidentally became exposed to several hundred roentgen, said Vitaly Nasonov, a spokesman for the Russian Nuclear Power Ministry.

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

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