European Business News (EBN), 97-07-01

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Page last updated Tue, July 01 7:06 PM CET

CONTENTS

[01] U.S. will not block Boeing-McDonnell Douglas merger

[02] BT and MCI plan global listing for Concert in London, Tokyo and New York

[03] UK and France agree to extend Eurotunnel's concession to operate the Channel tunnel to 2086

[04] Amersham, Nycomed agree to $3 billion merger

[05] Hong Kong briskly gets down to business as part of China

[06] Germany orders Deutsche Telekom to open local network to rivals

[07] UK High Court expected to rule on merit of tobacco case

[08] British betting chain William Hill hangs up for sale sign

[09] UK June PMI falls slightly

[10] Germany has most expensive labour costs in the world according to IW survey

[11] Santer is confident that EMU-related portfolio shifts won't hurt markets

[12] France Telecom confirms that US accounting rules would have meant $6 billion loss

[13] Linotype signs merger agreement with Heidelberger Druck

[14] Corporate and Economic Briefs

[01] U.S. will not block Boeing-McDonnell Douglas merger

It would have 65% of the world's jetliner market, almost double the share of its only rival, Europe's Airbus Industrie consortium. An FTC official, confirming the widely expected decision, said the merger would not substantially decrease competition for either military or civilian aircraft.

'Boeing has believed for some time that there would be an optimistic outcome to the review,' Boeing spokeswoman Sherry Nebel said tonight in Seattle. 'However, we have not received official word.'

European Union antitrust negotiators continue to review the merger to ensure it complies with the trade bloc rules. Negotiations between the European regulators and Boeing face a Friday deadline before a vote by the antitrust advisory panel of the European Union in Brussels.

Nebel said these talks are confidential. The 15-nation EU has called the merger unacceptable. It could impose fines of as much as 10% of the combined companies' revenues if it rules the merger violates its anti-trust guidelines. If push comes to shove, the EU could seize Boeing or McDonnell Douglas aircraft at European airports. The FTC concluded that McDonnell Douglas ceased to be a competitive factor in the market for commercial jets. Last year, the company won only 4% of new airplane orders.

The Pentagon, meanwhile, advised FTC commissioners there were no significant contracts coming up in the next five years for which Boeing and McDonnell Douglas could have been expected to compete. In fact the deal is less of a merger and more of a buyout of McDonnell Douglas by Boeing. Boeing has offered to pay nearly dlrs 14 billion in stock for McDonnell Douglas, based in St. Louis.

The deal would create a civilian- and military-aircraft powerhouse with more than 200,000 employees and projected annual revenues of 48 billion dollars - the world's largest aerospace company. Shareholder approval from both companies is needed before the merger can take effect. Shareholder meetings are scheduled July 25.

[02] BT and MCI plan global listing for Concert in London, Tokyo and New York

Speaking at a press conference in Tokyo, Peter Bonfield, BT's chief executive officer, and MCI Gerald Taylor said the merged company Concert will first list its stock on the Tokyo market, then in New York and London. BT's stock is currently listed on the three markets.

BT said last November it will acquire America's second-largest long- distance telecom company and set up Concert around this August to provide local and long-distance services as well as Internet and intranet computer communications along with comprehensive multimedia systems. The merger, with an acquisition fee of 23 billion dollars, follows the 1994 acquisition by BT of 20% of MCI's shares. Once the merger has been completed, BT will hold 66% of Concert's stake with MCI owning the remainder. Their targeted share of the global telecom market is 6%, becoming a rival of AT and T of the United States and Deutsche Telekom.

On a possible tie-up with Japanese telecom giant Nippon Telegraph and Telephone, which will be broken up in three entities under a holding company by the end of fiscal 1999 which starts April 1999, Bonfield said Concert just needs to be patient.

'They deal with many people and the management said that they are not looking at doing anything exclusively with one partner,' Bonfield said. 'But we believe Concert will be a good company to partner with. And we should be actively considered.'

As part of sweeping financial deregulation known as the Japanese 'Big Bang, ' the Japanese parliament passed a bill last month to break NTT into two domestic carriers and one international carrier under a single holding company. The parliament also passed a bill to allow Japan's largest international telecom firm KDD to enter the domestic service market. Although there has been no specific plan of a tie-up with NTT, Bonfield said the series of reforms gives them a huge opportunity to provide their services in Japan.

[03] UK and France agree to extend Eurotunnel's concession to operate the Channel tunnel to 2086

That agreement hinges on Eurotunnel and the two governments reaching an agreement on details of the governments sharing Eurotunnel's profits after 2052.

But the French Finance Ministry, which annonced the news, added that if the debt restructuring plan were to be rejected and if the creditor banks asked to exercise their rights under the 'substitution clause,' the governments would not be able to refuse them if the conditions stated in the concession were met.

Under the terms of the substitution clause, the bank lenders can take control of the concession and change the management.

[04] Amersham, Nycomed agree to $3 billion merger

The companies said the merger will give them a leading position in global markets for in-vivo diagnostic imaging agents and research-based biotechnology.

Bill Castell, Amersham International chief executive, said that the proposed merger with Nycomed will boost 1998 pretax profit by £20 million.

Castell denied the proposed merger is defensive in nature. He blamed Nycomed's falling earnings on the company being 'in a mature market.'

'If we look at our total business this merger gives us all modalities and all markets worldwide,' Castell said, adding that the in-vivo diagnostics market will show substantial growth over the next decade.

The merged company, he said, will be in pole position with about 25% of the 3 billion GBP global in-vivo diagnostic imaging market.

Castell said the use of traditional ultrasound techniques can be appled to real time heart, liver and kidney diagnostics through the use of specially designed bubbles. 'The contribution of in-vivo to special health care will improve,' Castell predicted.

[05] Hong Kong briskly gets down to business as part of China

Newly sworn-in lawmakers worked through the night to ratify new bills they had approved earlier, including one curtailing some civil liberties. Then they emerged into Hong Kong's foggy, rain-soaked first dawn under Chinese rule. Paul Cheng, a new legislator, urged people to support the China- backed legislature and ignore British and U.S. assertions that it is undemocratic. 'Rise above the sound bites and headlines to continue to support us, to have faith in our ability to propel Hong Kong to new heights, ' Cheng said.

China has promised not to send People's Liberation Army troops onto the streets of Hong Kong in armoured cars, Foreign Secretary Robin Cook said.

Cook said he had won the pledge from Chinese Foreign Minister Qian Qichen who told him the force was strictly for external defence and not for internal security. The appearance of troops in Hong Kong is a highly charged political issue as memories of the 1989 Tiananmen massacre are still fresh in the minds of people who take to the streets in their thousands every year to commemorate the killings.

Cook said he welcomed the fact that a senior Chinese minister 'has explicitly confirmed that the defence role of the PLA is solely external, not internal.

After 156 years of British colonial rule, Hong Kong reverted to Chinese sovereignty at eight seconds after midnight Tuesday with the ascent of China's flag at a handover ceremony.

The question of continued stability for Hong Kong rests largely on Beijing, which promises laissez-faire oversight under the 'one country, two systems' principle of Deng Xiaoping, the Chinese leader who died in February. Deng, who engineered China's economic reforms in the 1980s, devised 'one country, two systems' as a template for reunification with Taiwan, which Beijing considers a renegade province.

From Jiang down, Chinese officials are bursting with exuberance at Hong Kong's return to the fold and are already mentioning it as the first step toward reassembling China's fragmented pieces.

'Let the entire Chinese people, our compatriots in Hong Kong, Macau and Taiwan and the overseas Chinese included, get united,' Jiang said.

[06] Germany orders Deutsche Telekom to open local network to rivals

The ruling followed a regulatory complaint by Mannesmann-led Mannesman Arcor, O.Tel.O - the joint venture of RWE and Veba - and NetCologne, a city carrier who complained that Telekom was not offering full access for rivals to its local networks.

'If Deutsche Telekom does not provide such an offer, the Federal Ministry for Posts and Telecommunications will begin penalty proceedings,' the ministry said in a statement.

The ruling will allow Telekom's rivals, which do not own local communications networks, direct access to residential and business customers over Telekom's own network, a situation that is common in other competitive telecoms markets.

The German telecommunications market and most of Europe will open to full competition on January 1.

[07] UK High Court expected to rule on merit of tobacco case

If it clears this hurdle, the case could become a test of strength between Europe's nascent anti-smoking movement and the tobacco industry. 'This case could be judgment day,' says Julian Fulbrook, a lecturer in law at the London School of Economics, who has followed the case. Still, if the court lets the suit proceed, a trial date could be up to two years away. However, it's far from certain that anti-tobacco advocates will prevail, even with the industry on the defensive following the U.S. settlement. Indeed, industry critics have won no legal victories in the U.K. - the few, individual anti-smoking cases have been lost or dropped by plaintiffs. Having been coached by attorneys in the U.S., Martyn Day, the British plaintiffs' lawyer, believes growing sentiment against the tobacco industry will help his case. Moreover, the U.S. settlement proves the industry isn't invulnerable. The plaintiffs argue that the tobacco companies ignored their 'duty to care' and were therefore negligent for selling a product they knew caused death or injury.

Cigarette warning labels were introduced in the U.K. only in 1971, compared with 1965 in the U.S.

The plaintiffs also intend to focus on consumer-protection statutes, though unlike in the U.S., product liability is largely uncharted territory in the U.K. Mr. Day and his team will argue that a company is liable if a product it sold caused injuries, even if the company didn't know at the time the product was dangerous. The suit would also break legal ground, as there is little U.K. case law involving medical and environmental liability.

[08] British betting chain William Hill hangs up for sale sign

'A memo of information has gone out to interested parties seeking indicative offers and at that stage the board of Brent Walker will decide if they are going to proceed and if they proceed whether that will be for a sale or a float,' William Hill managing director John Brown said.

Analysts have put a price tag of between £500 and £600 million ($832-$999 million) on the business. Interested parties have until the beginning of July to put in their indicative offers. Brent Walker's books value the betting chain at a price of £428 million.

Bass, the leisure and brewery group, declined to comment on mounting press speculation that the company is poised to make an offer for the betting shop. 'We don't comment on market speculation,' said a Bass spokesman.

Analysts have said William Hill would fit well with Bass's own chain of 890 Coral betting shops, making considerable cost savings. 'The only problem is the obvious monopoly concerns,' said one analyst. If the government allowed the deal to go ahead it would give Bass 35% of a market valued at about £6.0 billion a year. Ladbrokes Group has 1,915 shops and William Hill 1, 550.

William Hill is Brent Walker's last major asset after the sale of the Pubmaster chain of inns in November for £171 million. Brent Walker's loan covenants with its banks, owed some £1.3 billion by the company, draw to a close at the end of the year. Brent Walker, built up by former boxer George Walker, was rescued from collapse by its banks in 1991 at the height of recession.

William Hill, which has about half its shops in the London area, is currently about seven years through a 10 year refurbishment programme across its estate.

[09] UK June PMI falls slightly

The U.K.'s purchasing managers' index fell slightly in June but continued to show expansion, according to the latest monthly survey from the CIPS.

Although the index fell to 53.4% in June from 54.4% in May, the CIPS said the index still showed the 13th consecutive month of British manufacturing expansion. Any reading above 50% signals growth in the sector.

'The main source of new business was the domestic market, with the strength of the pound again reported to have significantly subdued foreign demand,' the CIPS said.

Purchasing managers reported further growth in output to meet the rise in order books. However, although more than a quarter of all firms raised production during the month, growth slowed compared to the level recorded in May and was the lowest level seen so far this year.

The deceleration was in part attributable to an increased incidence of firms deliberately reducing stocks of finished goods in order to cut costs.

[10] Germany has most expensive labour costs in the world according to IW survey

The Institute for the German Economy said that even formerly communist eastern Germany, whose economy is grappling with high unemployment and struggling to get back on its feet seven years after unification, has labour costs of 31.89 marks an hour, higher than all the other Group of Seven rich countries except Japan, IW said.

Western Germany's competitive position has worsened steadily since unification. Its 1996 gap of 58% above the average compares with a 28% premium in 1989.

The world's top 10 countries in terms of 1996 labour costs are all in Europe, said the institute, which surveyed 21 wealthy industrialised countries.

Japan, whose hourly labour costs were 32.57 marks in 1996, dropped to 11th place due to a fall in the yen's value. The U.S., which topped the list in the mid-1980s, was far down the chart in 15th position at 26.60 marks, it said.

Germany has climbed in the 1990s due to pricey wage agreements, but the recent drop in the mark's value against the dollar could provide some relief, it said.

[11] Santer is confident that EMU-related portfolio shifts won't hurt markets

Any shifts in portfolio holdings on world financial markets from the change to Europe's planned 1999 single currency won't have a negative impact on financial markets, Jaques Santer said. And asked how he assessed the chances of Europe's currency union starting on time, Santer said E.U. countries have made good progress in converging in their inflation and interest rates. 'There are real reasons to believe it will start on time and (the euro) will be a stable, strong currency,' he said.

Speaking to a group of bankers in Frankfurt, Jacques Santer said, 'there may be reasons to expect such shifts, but there isn't any reason to expect they will be disruptive or exercise pressure on exchange rates.' He also said there wasn't any reason to fear that the euro will weaken once it is introduced as the growth and stability pact, designed to hold countries to fiscal discipline once the euro is introduced, will help ensure a balanced policy mix, he added.

Asked later if currency union will go ahead if France's budget deficit exceeds 3% of gross domestic product - and it is as high as 3.4% this year, Santer said the decision on which countries will qualify for the euro will be a political one and noted it won't be made until April next year.

'We have to see what comes out of (France's) financial audit in July, then we have to wait for their budget initiative,' Santer said. E.U. member countries must cap their deficits at 3% of GDP this year in order to qualify for the launch of the euro, planned for January 1, 1999.

To this end, and in the light of a host of budgetary difficulties throughout Europe, Deutsche Bank head Rolf Breuer urged European governments to be more pragmatic when dealing with the issue of revaluing assets. In a veiled reference to a debate raging in Germany about using revalued assets to help fill budget gaps before currency union, Breuer said 'we are too puristic, too idealistic, we should be more pragmatic.'

Asked to discuss the issue of revaluing national assets and privatising government owned properties or corporations, Breuer said nations should be able to use the same principles used in business.

'We should take a more pragmatic, a more realistic view,' Breuer said discussing the fact that valuing assets close to market prices is a common business practice. Recently, the Bundesbank had reacted strongly to plans on the part of the Bonn government to revalue its assets this year in a bid to raise extra funds in the final months before the qualification decision on monetary union.

Under a compromise deal, a partial upward revision of the value of the central bank's assets, which are currently on the books at well below market prices, will take place at the end of this year.

[12] France Telecom confirms that US accounting rules would have meant $6 billion loss

'Yes it is correct, but it is nothing new,' a spokesman said, adding the difference was due to the treatment in the accounts of a one-off 37.5 billion franc payment to the government in exchange for the state assuming the pension liabilities for civil servants employed by France Telecom.

The company filed its accounts according to US GAAP rules with the Securities and Exchange Commission as part of preparations of its planned, but suspended, IPO.

'As far as we are concerned those documents are not public,' the spokesman said.

He said that under the French accounting rules, the one-off payment had been taken from the reserves and not from the earnings.

The 1996 accounts of France Telecom were the first set of accounts drawn up under the company's legal status as a company with a share.

[13] Linotype signs merger agreement with Heidelberger Druck

As part of the merger, Linotype shareholders will receive two Heidelberger shares, at a nominal, or par, value of 5 Deutsche marks ($2.9), for every five Linotype shares held, at a par value of 50 marks, the company said.

The exchange terms are based on an evaluation by the KPMG accounting firm. KPMG valued Linotype at 105 million marks ($61.7 million) and Heidelberger at 5.5 billion marks.

The planned merger between the two printing companies had already been announced and was approved by the cartel authorities in November. Linotype said the merger agreement must be approved by its shareholders at the end of August, and by Heidelberger's shareholders in September.

Meanwhile, Linotype said it expects to return to profit in two years. In 1996, the company had a net loss of 144 million marks and an operating loss of 282 million marks before restructuring subsidies, it said.

Since November, when Heidelberger Druck acquired the majority of shares in Linotype, Heidelberger has transferred restructuring subsidies worth 165 million marks to Linotype.

Heidelberger currently holds 79% of Linotype, it said. The company said it doesn't plan to make an offer for the remaining shares.

`Heidelberger is to go public later this year, the company said in a later press release.

Heidelberger Druck is majority-owned by Rheinelektra.

[14] Corporate and Economic Briefs

British Airways ground staff voted to strike over the airline's plans to contract its catering services to a separate company. The carrier, which already faces a job action by more than 6,000 cabin staff, has been advertising for temporary staff and training managers to try to break the looming strikes. Ground crew workers belonging to the Transport and General Workers' Union voted by 4,150 to 2,485 to go on strike. Leaders are to meet today to decide what form of action to take. Cabin crew members in the same union last week approved an unspecified job action in a separate dispute over pay and working conditions.

South Africans faced a bewildering array of investment opportunities today when, for the first time in decades, individual investors were given the opportunity to play the global market. In the latest step of a phased dismantling of apartheid-era exchange controls, private investors can invest up to 200,000 rand ($44,160) abroad or in foreign currency- denominated local bank accounts. Exchange controls on foreign investors have already been dismantled and institutions have been allowed in stages to place up to 10% of their assets abroad. Now individuals are being given their turn to go global.

U.K. Chiroscience Group said it has named Robert Jackson executive director for research and development for its Darwin Discovery activities in the U.K. Darwin Discovery is the Seattle-based company formerly known as Darwin Molecular Corp., which Chiroscience acquired in December for 72.0 million GBP. Chiroscience renamed it Darwin Discovery following the completion of its integration in May. Chiroscience said Jackson will be based in Cambridge and will report to Chief Executive John Padfield.

MFI Furniture Group said pretax profit rose 21% to £70.3 million for the year ended April 26, 1997. The retailer and manufacturer of kitchen and bathroom furniture said it opened 13 new stores in France, bringing the total number of stores in the country to 99. Sales in France and Spain reached £59.3 million, up 24% from last year in local currency, said MFI. Company Chairman Derek Hunt said that in the first nine weeks of the 1997/98 financial year, group sales are up 5% over the like year-earlier period. 'This time last year sales were very strong,' he said. 'We are particularly pleased to have beaten this very demanding comparative period from last year.'

Italy's Fininvest Group, which is controlled by former Prime Minister Silvio Berlusconi, said that net profits fell in 1996 to 398 billion lire from 425 billion lire ($248.8 million) in 1995. However, the company noted that the drop was partially attributable to lower extraordinary gains in 1996 of 1.399 trillion lire, down from 1.753 trillion lire in 1995. Additionally, in 1996 the company - one of Italy's largest private firms - recorded writedowns of 213 billion lire compared to zero writedowns in 1995. The higher amortization costs in 1996 were to some extent offset by lower taxes.

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