European Business News (EBN), 97-06-26

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Page last updated Thu, June 26 6:16 PM CET

CONTENTS

[01] Deutsche Telekom strikes deal over Bonn's final 25% of shares

[02] Rhone-Poulenc studies Rorer buyout

[03] McDonald's lifts 15-month ban on British beef

[04] NatWest says options losses covered up

[05] Daimler stock rises on plan to sell Cap Gemini stake

[06] Lufthansa expects record results

[07] Abbey National bids for Cater Allen

[08] Tulip looks set to acquire fellow computer company Commodore

[09] Italy approves decree permitting tender for third mobile phone licence

[10] Nokia, Ericsson, Motorola agree to develop common wireless protocol

[11] Asda posts full year pretax profit up 16%

[12] Handover Watch: Clash of loyalties in Hong Kong Police highlights tension before Chinese takeover

[13] Corporate and Economic Briefs

[14] World News Briefs

[01] Deutsche Telekom strikes deal over Bonn's final 25% of shares

Telekom did not say how much the government would receive from KfW for the tranches, but reports in the Frankfurter Allgemeine Zeiting suggest Bonn could receive a profit of 10 billion marks ($5.8 billion) this year and 15 billion next. The FAZ based its report on information from confidential sources, it said.

Through the acquisition, 'Telekom has the chance to offer shares in the company to strategic investors at the market value,' the company said in a press release. 'The term 'strategic investors' indicates current and future partners in international telecommunications sector.'

The KfW may sell the shares privately to 'strategic investors' with Telekom's consent, but KfW's Telekom shares will not be available on the market until after 2000, Telekom said.

Bonn originally planned to keep the remaining stake until the year 2000, but has recently said it wants to speed up this and other privatisations to help boost public finances in the run up to European economic and monetary union.

While the government is prevented by law from selling any further Telekom shares onto the open market without the approval of Deutsche Telekom's board, the deal with KfW means the shares will be effectively 'parked' with a state-owned agency, and their value will not be diluted.

[02] Rhone-Poulenc studies Rorer buyout

In response, Rhone-Poulenc Rorer said it plans to review the report at a regular board meeting July 2.

Rhone-Poulenc's move, which analysts have been speculating about for years, would take place after July 31, 1997, when the two companies' standstill shareholding agreement expires. A company spokeswoman said Rhone-Poulenc hadn't made a definite decision on the buy yet, but that it had announced its intentions because of heightened speculation and in the interest of keeping its shareholders informed.

The chemicals group said it was considering paying minority shareholders $92 per share for the purchase. In a statement, the firm estimated the cost of the transaction at 25 billion francs ($4.3 billion), and it said it would have to increase its capital by seven billion francs to carry out the purchase.

If it goes ahead with the move, Rhone-Poulenc would then combine its chemicals and fibers and polymers businesses to create new company that would be listed in 1998. Rhone-Poulenc would maintain substantial majority control in that company, which would focus on specialty chemicals and services. Rhone-Poulenc would combine its life sciences businesses into another company.

'These measures would make up a new and important step in the transformation of Rhone-Poulenc into one of the world's leaders in life sciences,' chairman Jean-Rene Fourtou said in the statement.

'I am certain that if these measures were put into place, they would offer Rhone-Poulenc and Rhone-Poulenc Rorer shareholders the best value for their investment,' he said.

Rhone-Poulenc said that its debt to shareholders' equity ratio would be reduced to 60% at the end of 1998 and 50% at the end of 1999. It said the net debt linked to the rise of its stake in Rhone-Poulenc Rorer would be quickly reduced through such measures as improved operating cash flow and an increase in shareholders' equity.

Rhone-Poulenc reaffirmed an earlier estimate that its net profit per share would increase by 20% for 1997 and 1998, despite a weak dilution and excluding exceptional items. It said it expected to maintain in 1997 the dividend it paid in 1996.

[03] McDonald's lifts 15-month ban on British beef

'We will begin buying British beef immediately and the new supplies will start to be served in restaurants over the next few weeks,' McDonald's managing director Andrew Taylor said after meeting with Agriculture Minister Jack Cunningham. 'The results of our last research, conducted this month, show that 74% of consumers now want us to sell British beef,' Taylor added.

McDonald's, which had been spending more than £22.5 million ($37.5 million) a year on British beef, stopped using it in March 1996 after the government announced a likely connection between a fatal brain disease in humans and meat from cows infected with bovine spongiform encephalopathy.

'McDonald's decision underlines their confidence in British beef and will go some way to further boosting consumer confidence, which has already recovered remarkably well,' Cunnningham said.

Before the meeting with Cunningham, McDonald's spokesman Mike Love told BBC radio, 'We have always said we would return to the use of British beef when our customers told us the time was right.' He added, 'we have been carrying out consumer research over the last year and the latest results are very encouraging.There has been a definite improvement.'

McDonald's, which has 760 restaurants in the United Kingdom, had been buying 7,000 cattle a week, or the equivalent of one in 12 of all the British cows that went to market for slaughter. Its ban was a severe blow to farmers and the British market.

The crisis led the European Union to ban Britain's worldwide beef exports the same month - a measure that still stands - and the payment of hundreds of millions of dollars in subsidies to the beef sector to prop up prices and farmer incomes.

[04] NatWest says options losses covered up

Britain's Serious Fraud Office said it is considering a criminal investigation into the losses.

NatWest said the deficit was confined to its interest rate options businesses and was covered up for two years by former trader Kyriacos Papouis.

The statement came following the conclusion of an independent review carried out by Linklaters & Paines and Coopers & Lybrand for NatWest following its announcement in March that it would take a charge of £77 million against interim pretax profits.

NatWest conceded the losses, and Papouis' deliberate attempts to falsify profits, went undiscovered because of 'weaknesses in the operations and internal controls' at NatWest Markets.

NatWest said there is no evidence of any loss to clients or personal gain as a result of the actions by Papouis, and that a full report of the inquiry was sent to the Bank of England and the Securities & Futures Authority, as well as the Serious Fraud Office.

However, following the report, six people have already left, or agreed to leave NatWest Markets, while an unspecified number are now subject to 'internal disciplinary measures,' said the bank.

[05] Daimler stock rises on plan to sell Cap Gemini stake

Daimler said it intended to spin off its stake in Cap Gemini in the medium term by issuing a convertible bond.

The convertible bond issue will allow the company to recoup its entire 1.3 billion Deutsche mark ($753.4 million) investment in Cap Gemini Debis Chief Executive Officer Klaus Mangold said he expects the unit's sales to rise 400 million marks to about 2.8 billion marks this year.

Mangold said Debis originally invested 1.1 billion marks in Cap Gemini in 1991, and later made a 170 million mark capital injection.

Cap Gemini, which is Europe's largest computer services company, applauded Daimler's decision to abandon its plan to buy a controlling stake in the French company.

Cap Gemini said the move 'removes the uncertainty that has clouded the group's shareholder structure for several months.'

It said the decision 'is the best one for the development of each company. It has the merit of giving Cap Gemini the strategic mobility that it feels is necessary for it to respond to the needs of a strongly expanding market.'

Cap Gemini said it will give out its 1997 first half results and projections for full year earnings 'that should be in line with shareholders' expectations.'

Meanwhile, Cie Generale d'Industrie et de Participations, a holding company that owns 25% of Cap Gemini's capital, said it, too, is satisfied with Daimler Benz's decision, 'as it puts an end to a long period of uncertainty.'

CGIP has first refusal rights to the German group's shareholding, and said it will decide whether or not to exercise this option over the coming month.

[06] Lufthansa expects record results

Chairman Juergen Weber told shareholders at the company's annual meeting that passenger business, especially on North Atlantic and Pacific routes, is 'characterized by high volume growth,' Weber said. In addition, cargo business has shown considerable earnings improvement.

Lufthansa didn't give any specific figures for the first half of the year. In the first half of 1996, Lufthansa posted pretax profit of 119 million Deutsche marks ($70 million). The company traditionally only gives pretax figures for quarterly and biannual data.

'In the absence of major changes in the market, we expect 1997 results to be above the best-ever results in 1995,' Weber said. He also noted that oil prices were not expected to rise during the rest of the year.

Weber said Lufthansa's first-half results, to be released on August 26, would top results during the same periods in 1995 and 1996 and exceeded the airline's own expectations.

'We will end the first half of this year with profits significantly higher than the prior-year level and also above the good half-year results in 1995, ' he said.

'The barometer is presently rising. Our passenger numbers are growing strongly, especially in the North Atlantic, Asian and Pacific markets,' Weber said.

[07] Abbey National bids for Cater Allen

The statement was made by Cater Allen moments after it released year-end results showing pretax profit of £17.1 million after exceptional items, compared with £14.6 million a year ago.

Cater Allen, a money broking and banking firm that is an intermediary between the Bank of England and large commercial banks, will provide Abbey National with a wholesale and retail deposit base, Cater Allen said.

'The acquisition of Cater Allen offers a unique opportunity to increase Abbey National's presence in strategically important growth markets which build upon Abbey National's existing treasury and offshore businesses,' said Abbey National Chief Executive Peter Birch.

As for Cater Allen, its new owner will allow it to expand its businesses more quickly, and will benefit from an enhanced credit rating, said Chairman James Barclay. Although the company will cease to be independent, the two companies have decided Cater Allen will retain its corporate name.

The offer represents a 31% premium over the closing Cater Allen share price on June 4, the day before Abbey National approached the company with an offer.

According to the deal, Cater Allen will become part of Abbey National Treasury Services group, which was established in 1989. Abbey National's Birch, Gareth Jones and Steven Warr will join the board of Cater Allen, while Cater Allen's Barclay, Rodney Galpin and Jeremy Norfolk will join the board of Abbey National Treasury Services.

[08] Tulip looks set to acquire fellow computer company Commodore

The Dutch computer company said that as a result of the takeover it will have annual revenues of more than 1 billion Dutch guilders ($515 million), a top 10 position in the European market and market share in the Netherlands of between 8%-10%.

Tulip stated that the takeover may be financed by a 30 million guilder share issue that would fund future expansion and repay the subordinated loans being taken to fund the Commodore buy.

Tulip and Commodore will retain their own brand names and focus on different market segments. Tulip will continue to target the professional market and use its current distribution channels.

Commodore will work on the consumer market and small offices and sell its products through its own shops. Outside the Netherlands, sales of the Commodore brand will be expanded through chain store outlets.

Tulip said the two companies' combined purchasing power will give them more leverage with suppliers, capacity will be expanded at its factories and Tulip will be able to assist Commodore's expansion overseas.

Tulip has also announced plans to cut 130 jobs saying that it can not rule out some mandatory dismissals.

[09] Italy approves decree permitting tender for third mobile phone licence

A Senate official said the government decree, which the lower house has already approved, was ratified without any modification to the text, meaning it passes automatically into law. The telecommunications ministry said the tender will open near mid-July, and the licence will be awarded between the end of November and middle of December.

Italy already has two digital GSM (global system for mobile telecommunications) mobile phone service operators - state-controlled Telecom Italia Mobile and Omnitel, controlled by an international consortium led by information technology group Olivetti. The third licence will be for a manager of a Personal Communication Network standard mobile phone service, which has yet to make its debut in Italy.

Several companies have expressed interest in the licence, including a consortium consisting of Albacom, a joint-venture between British Telecom, Banca Nazionale del Lavoro and Italian private broadcaster Mediaset.

A joint-venture involving Italian electricity utility Enel and Deutsche Telekom is also interested. But TIM and Olivetti have criticised Enel and Deutsche Telekom's plans to make a bid. Tim and Olivetti said state-owned Enel should not be allowed to muscle in on the national telecoms market.

Giuliano Amato, head of Italy's antitrust authority, said the proposed bid should be investigated either in Rome or Brussels.

Subscribers in Italy's mobile phone market has grown to 7.2 million in March from 2.2 million in 1994. Analysts said that number could reach 14.5 million, more than a fifth of the population, by 2000.

[10] Nokia, Ericsson, Motorola agree to develop common wireless protocol

Nokia said the protocol is designed to align the companies' efforts to bring advanced applications and Internet content to digital mobile phones.

Nokia said the protocol specification is scheduled to be published on the World Wide Web by Sept. 15.

The protocol will permit applications and functions such as handling of voice, fax and e-mail; information services, including hotels, banking, stock trading and directory services; and Internet services, Nokia said.

The company said the protocol will use its smart messaging specification as well as the handheld device markup language and the handheld device transport protocol developed by Unwired Planet. Also, Ericsson's intelligent terminal transfer protocol will be included in the new technology.

[11] Asda posts full year pretax profit up 16%

ASDA, which aims to be the cheapest of the UK's four big supermarkets, said same store sales increased 9.2% as it reported year pretax profit before exceptional items up 16% to £353.7 million ($588.1 million) and paid out a dividend of 3.05 pence per share, up 15%.

Leighton reiterated chairman Archie Norman's belief that the key to further growth rests on keeping the philosophy and operations as simple as possible.

And in a separate report, ASDA said it was introducing 'fashion police' to target people who pay too much for clothes as a promotion for its own-brand 'George' range.

ASDA said anyone stopped would be issued with a 'fine' in the form of a voucher offering 10% discount on George clothing purchases.

'Whether their clothes are poor value or in poor taste, anyone 'cautioned' can use the voucher to make their next George purchase even better value,' the company said.

ASDA, known for its cheeky and innovative approach to supermarket retailing, said it was also setting up a telephone helpline for fashion victims, or anyone who wanted to inform on someone as 'Britain's worst dresser.'

[12] Handover Watch: Clash of loyalties in Hong Kong Police highlights tension before Chinese takeover

The case highlighted the tricky task Hong Kong faces in preparing its acclaimed 27,000-member police force for Chinese rule. Senior Inspector Chik Ki-wai, a spokesman for the group, said that in the 1970s, when they joined the force, they swore loyalty oaths to Queen Elizabeth II, not knowing Britain would agree in 1984 to return Hong Kong to China.

'We will not report for duty for the new police force,' Chik told a news conference. 'We consider our contract with the Hong Kong government as crown servants to be terminated on the changeover.'

Chik said the government has warned that if they are absent for more than 21 days, they could be charged as deserters and lose their pensions. He did not release the names of the other four male and three female officers, saying they wanted to remain anonymous for their 'personal safety and personal privacy.'

He also said he was not criticizing the incoming government, but didn't want to carry out any future orders 'that might be contrary to my conscience.' He went on to say he does not expect other officers to follow his lead because 'the force now is working very well under good leadership and a lot of people elected to stay' after the switch in sovereignty.

The government says morale is high and has sought to play down concerns about the handover. A police spokesman, Raymond Tam, said the officers could resign at any time and might not have to give three months notice if they did so before Monday.

Officers who resign cannot draw pensions before age 55, and Chik, 39, said they would not do it. He said the group was recruited in the mid-1970s. Of the officers recruited from Britain and elsewhere, 156 are retiring while 125 are staying on, spokesman Tam said.

Chik, who like the other seven officers has a British passport, said the government was being racist in denying them the same retirement terms as the 156 non-Chinese retirees. He said Jeremy Hanley, a British former minister, told the group that such a concession could entice thousands of others to retire early.

'It's a clear case of discrimination,' said legislator James To, who is helping the group.

[13] Corporate and Economic Briefs

French consumer spending in May fell 1.1% compared with April and was up 0.4% from a year earlier, national statistics bureau INSEE said. The April figures were downwardly revised to up 1.2% from up 1.5%.

Italy's tax revenue in the first four months of 1997 rose 2.2% to 150.553 trillion lire ($94.1 billion) over the same period in 1996, the Finance Ministry reported. In April of 1997, however, tax revenues decreased by 3.3% to 38.918 trillion lire when compared with April 1996. The ministry attributed the decline in April tax revenue to a change in accounting methods for taxation of the production in electric energy. In 1996, the tax was accounted for in the month of April alone while it is being accounted for on a monthly basis in 1997, the ministry said.

French media and communications group Havas reiterated that it expects net profit before goodwill this year to total 1.5 billion francs ($258.6 million), or 18.8 francs a share. This compares with 1.2 billion francs, or 19 francs a share, last year. Including goodwill charges, Havas posted a net profit of 1.0 billion francs in 1996.

Britain's Great Universal Stores saw pretax profit for the year ended March 31 fall 1.8% to £570.6 million ($912.9 million) from £581.1 million a year earlier - its first annual profit fall in nearly half a century - reflecting the continued poor performance of the group's core agency mail order business. Sterling strength also hit profit, as the translation of overseas earnings into sterling was depressed by £21.7 million. Retail sector analysts said the drop in the company's shares reflected disappointment that GUS had not taken more radical action to combat mail order's troubles. The absence of any special dividend payout, which some investors had expected, also hit the stock.

French bank group Societe Generale said that first-half 1997 net income should show a significant rise from the first-half of 1996, when it came in at 2.73 billion francs ($470.7 million). The bank said that gross operating income would also be significantly higher in the first-half of 1997. Comparable figures weren't immediately available.The bank said retail banking activity registered a 'satisfactory' level of growth in deposits and assets under management. New lending activity saw a 'significant' increase, chiefly thanks to increased demand for mortgages and consumer credit. By contrast, commercial loans were down due to low demand. Societe Generale said assets under management now total more than 500 billion francs, an increase of 17% compared with a year ago.

Finland's unemployment rate in May inched up to 16.7%, from 16.6% the previous month, mainly because of an increase in the number of jobless youth. In May last year, 17.0% of the work force was out of a job, the government statistics agency said. Last month's figure is not directly comparable to the jobless rate in May 1996, because of a new method of counting used by Statistics Finland. In all, there were 156,000 unemployed 15-to-24-year-olds in May, 58,000 more than in April, the agency said. The latest figures mean that 438,000 people were out of work in a population of 5.1 million, making the Finnish rate one of the highest in the European Union.

Denmark's May seasonally-adjusted unemployment rate came in at 8.1% of the work force, slightly up from 8.0% in April, Danmarks Statistik, the Danish national statistics agency, said. This brought the number of unemployed Danes up to 224,100 in May from 222,500 in revised data for April. The April figure was revised upwards to 8.0% from the 7.9% rate published last month. The May unemployment figures were somewhat stronger than market expectations. Analysts had expected a slight fall in the jobless rate to 7.8%.

Sweden's producer price index rose 0.7% in May from April 1997, according to figures released by SCB, the national statistics agency. The rise in producer prices above analysts expectations and brought the annualized change in producer prices to a rise of 1.4% from a rise of 0.2% in April. Market economists were expecting a 0.3% rise on the month and a 1.1% rise on the year. The increase in PPI was largely due to rising prices for meat and meat products. Higher crude oil prices were the main reason for the 0.2% rise in import prices, while higher pulp prices contributed to the 0.4% increase in export prices, SCB said.

Alcatel Alsthom said that it has won three mobile telecommunication contracts in Southeast Asia worth a combined total of $115 million. Alcatel will provide mobile communications infrastructure equipment such as switching equipment, base stations and base station controllers to companies in China, the Philippines and Uzbekistan, the company said.

BPB, Europe's largest plasterboard maker, overcame a drop in sales to report a 9.4% gain in pretax profit in the latest year, but said weakness in its paperboard unit and a strong pound would continue to weigh on earnings. In its year-to-March-31 results, the company, which also has packing interests, switched to average exchange rate accounting from the previous year-end exchange-rate method, bringing it in line with most of its peer group and halving the adverse impact of the strength of sterling in the year to around £10 million ($16 million).

Portugal's government confirmed the sale of a 27.5% stake in petroleum company Petrogal to Saudi Aramco, completing the company's privatization. The government said Saudi Aramco will buy a 27.5% stake in Petrogal from the government and from Petrocontrol, the private consortium of shareholders in the state-run company. The government will reduce its stake in Petrogal to 45% from 55%, while Petrocontrol will reduce its stake from 45% to 27.5%, putting it on an equal footing with Saudi Aramco. Financial terms were not disclosed.

U.K. pharmaceuticals giant Glaxo Wellcome U.S.-based unit signed a definitive agreement to dispose of its pharmaceutical production facility in Greenville, North Carolina to Catalytica of the U.S. The purchase agreement provides Glaxo with $247 million cash, and will be used to reduce group borrowings. Group borrowings stood at 1.98 billion GBP at the end of 1996. Additionally, Glaxo will receive 250,000 shares of preferred stock in Catalytica Pharmaceuticals, as well as warrants to purchase 2 million shares at $12 per share of common stock of Catalytica Inc., the parent company.

[14] World News Briefs

At least seven people were killed in a battle between government troops and Muslim separatist rebels who seized about 60 bus passengers as hostages in the southern Philippines, the military said. About 40 of the hostages escaped during the fighting, which killed two civilians, four rebels and one army officer, officials said. The fighting was the latest in a series of recent clashes, the worst since the government and the rebel Moro Islamic Liberation Front began peace talks in January. The rebels are fighting for a separate Muslim state in the southern Philippines.

An earthquake measuring 6.2 on the Richter scale rocked northeastern Iran on destroying 15 villages, Iran's official news agency IRNA said. It said the quake destroyed the villages near the towns of Qaen and Birjand, but did not mention any casualties. A Red Crescent official said relief teams had been sent to the area.

Japan urged Russia to investigate whether its coast guard was responsible for a shooting near the disputed Kuril Islands that wounded two Japanese fishermen. Under thick cover of fog, the 4.7-ton Eiko-maru No. 63 came under fire Wednesday night off the northern Habomai group of islets, which are controlled by Russia but claimed by Japan, officials said. Japanese officials said the Russian coast guard was a suspect, and demanded a quick probe and reporting of the findings to Tokyo.

No Mexican president has felt the need to veto an act of Congress in 28 years. None has faced an opposition majority there since 1913. But on July 6, Mexico faces the possibility of a political earthquake. The Institutional Revolutionary Party that has run Mexico since 1929 is very close to losing its majority in Congress, according to recent polls. 'It would be an historic change, a milestone,' said Congressman Juan Antonio Garcia Villa, secretary-general of the opposition National Action Party.

Heavy damage caused by frost will result in a sharp fall in Italy's apricot and plum harvests this year, the Italian Institute for Agricultural Research said. The apricot crop is estimated 10% lower at 125,000 tonnes and plum production will be 17% down at 150,000 tonnes, Ismea said. Emilia Romagna region was particularly badly hit, with apricots down by over 17% to 36,000 tonnes and plums by almost 20% to 62,000 tonnes.

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