European Business News (EBN), 97-07-02

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

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

Page last updated Wed, July 02 7:03 PM CET

CONTENTS

[01] U.K.'s Brown plans to cut the main corporate tax 2 percentage points to 31%, lowest rate ever in Britain

[02] Cinven acquires Generale des Eaux healthcare unit

[03] Axa sells U.K. operations to Sun Life unit

[04] Deutsche Telekom makes agreement on digital-TV market

[05] Canal Plus board approves Kirch TV stake swap

[06] German industrial output slips 0.2% in May

[07] DIW sees Germany 1997 deficit/GDP at 3.4%

[08] European Union investigates suspected illegal British beef exports

[09] KLM may sell its 19.5% stake in NorthWest Airlines, reports say

[10] Nike's profit rises 16%

[11] Corporate and Economic Briefs

[12] World News Briefs

[13] Windfall tax will raise £5.2 billion for welfare-to-work scheme

[01] U.K.'s Brown plans to cut the main corporate tax 2 percentage points to 31%, lowest rate ever in Britain

The 1997-98 tax figure includes the levy of a so-called 'windfall tax' on privatised utilities, which had been estimated at around £3 billion.

Brown also said he will cut the main rate of corporation tax to 31% from 33%.

Brown said this reduction will lead to ''the lowest-ever rate of corporate tax in the U.K, and we will have the lowest corporation tax of any of our competitors ... and we will have it under a Labour government.'

The cut in corporation tax will be backdated to April 1997.

Brown also abolished tax credits on U.K. share dividends paid to pension funds, effective immediately.

ACT will continue to be paid by companies at 20% - the current rate. This means most tax-exempt institutions will no longer be able to claim a credit on the tax - known as advanced corporation tax - that companies pay on dividends.

However, some tax-exempt investors, such as personal equity plans or charities, will still be able to claim a credit on dividends through April 1999. Brown also said he will cut the main rate of corporation tax to 31% from 33%.

Brown said this reduction will lead to 'the lowest-ever rate of corporate tax in the U.K, and we will have the lowest corporation tax of any of our competitors...and we will have it under a Labour government.'

The cut in corporation tax will be backdated to April 1997. Brown also abolished tax credits on U.K. share dividends paid to pension funds, effective immediately.

ACT will continue to be paid by companies at 20% - the current rate. This means most tax-exempt institutions will no longer be able to claim a credit on the tax - known as advanced corporation tax - that companies pay on dividends.

However, some tax-exempt investors, such as personal equity plans or charities, will still be able to claim a credit on dividends through April 1999.

Brown said the foreign income-tax dividend scheme - , introduced by former Chancellor Norman Lamont in the March 1993 budget - will end April 6, 1999.

That means that dividends drawn from foreign income will now be subject to ACT, although international holding companies can continue to pay dividends that aren't protected from the tax.

Elsewhere in the business sector, small corporation tax will be cut 2 percentage points to 21%, backdated to April 1997.

Brown said this was to encourage investment in small businesses. In another measure to aid investment, Brown said he will double for one year, effective immediately, the level of first-year capital allowances on plant and machinery for small- and medium-sized companies.

This will mean a company investing within the next 12 months can set off half of its investments against tax, rather than a quarter.

More than 3.5 million businesses will be eligible for this relief, the chancellor said, at a cost to the government of £230 million next year and £170 million the following year.

[02] Cinven acquires Generale des Eaux healthcare unit

The acquisition comprises Compagnie Generale de Sante, France's leading private hospital group, and General Healthcare Group, Britain's second largest private hospital and healthcare provider after BUPA.

Cinven said the two businesses will continue to be run as separate and independent companies by their respective management teams. Cinven said that in due course it will offer equity stakes in the CGE units to leading French institutional investors.

The fund manager said it plans to eventually merge Amicus Healthcare, the fourth largest hospital provider in Britain and already owned by Cinven, with GHG to create the U.K.'s biggest private healthcare concern. CGE will retain a 20% stake in CGS.

ABN Amro Corporate Investments is acting as co-underwriter in France, while equity finance is being provided by Cinven investment clients and by ABN Amro funds. Debt finance is being provided by a syndicate of banks led by Bankers Trust and Societe Generale.

Citing recent trends, Cinven said future volume growth in U.K. private healthcare is expected to be at least 3%-5% per annum. It also noted that the rate of growth in the French private healthcare budget is now running at about 1.7% per year.

'There is substantial growth yet to come from both CGS and GHG,' said Simon Rowlans, a director of Cinven. 'The European private healthcare market offers significant opportunities for expansion and we will provide the investment backing necessary to take advantage of the increasing market for private healthcare and hospital facilities and resources.'

Cinven currently manages £1.5 billion on behalf of British Coal Pension Schemes, British Railways Pension Schemes and Barclays Bank Pension Fund. In November, Cinven raised £300 million for a private equity fund dedicated to investments across Europe. It is one of the major European providers of equity funding to MBOs and MBIs.

[03] Axa sells U.K. operations to Sun Life unit

The £690 million ($1.1 billion) deal will create a company with funds under management of £30 billion.

The payment will be made via the issue of 224.8 million new ordinary shares and shares comprising 33.3% of Sun Life Asset Management's enlarged share capital. Axa Equity is to be restructured prior to the acquisition and a new company, Newco, is to be established to write most future U.K. life business. The enlarged group will be the third largest life insurance company in the U.K.

AXA-UAP will hold special rights arising from any attribution in excess of 10% of the inherited estate within AXA Equity & Law's long-term business fund.

Sun Life is also buying AXA Insurance for £70 million using capital from the issue of £22.8 million new ordinary shares. Overall, Sun Life will issue a total of £247.6 million new ordinary shares to AXA-UAP at 307 pence each. Following the acquisition, Sun Life will be 72.4% owned by AXA-UAP and will have a market capitalization of around £2.5 billion.

AXA-UAP said it plans to reduce its shareholding to 65% of the enlarged share capital. This will be achieved in two stages. Around 6 million ordinary shares are expected to be sold during the six months immediately following completion of the acquisitions. The remaining 53.6 million ordinary shares are expected to be sold over another six month period, currently expected to begin at the end of the millennium. Until such time, AXA-UAP said it will only exercise voting rights for 65% of shares.

The group expects to make significant synergy and cost savings and the deals are expected to be earnings enhancing next year.

[04] Deutsche Telekom makes agreement on digital-TV market

According to the agreement, Deutsche Telekom will establish and operate a 'neutral and technical' platform for digital programming on cable television. The platform will allow all broadcasters access without discrimination, Telekom said. Every household can be fitted with a digital decoder.

CLT-UFA is the media group resulting from the merger of the television operations of Cie Luxembourgeoise de Telediffusion and the UFA broadcasting unit of Bertelsmann earlier this year. The Kirch group holds a 25% stake in the pay-TV network Premiere, while Bertelsmann owns a 37.5% stake. The analog Premiere service will be converted to a standardized digital service.

As the digital network operator, Telekom will receive a fixed annual payment from CLT/UFA and Kirch for the use of the necessary hyper- frequencies, as well as a percentage of the resulting sales.

CLT/UFA and Kirch estimate they will need seven digital channels for their Premiere and DF1 services.

The three companies have also agreed to set up a new technology development company, Beta Research, in order to assure standardization in the cable and satellite television market, Telekom said. CLT/UFA, the Kirch group and Telekom will each hold one third of the company. Telekom said it will also provide two additional hyper-frequency analog channels until the end of 1998.

The broader service offer means Telekom will raise its consumer cable television fees in Autumn by 15% to 25.90 Deutsche marks, the company said.

[05] Canal Plus board approves Kirch TV stake swap

Deal allows Canal Plus to leave German market, leaving Kirch and Bertlsmann in control of it's pay TV service

French pay-TV company Canal Plus' board authorized the sale of Canal Plus's 37.5% interest in the German TV company Premiere Medien to German media conglomerate Kirch-Gruppe.

Canal Plus also has been authorized by its board to acquire the 45% interest held by Kirch in Italy's Telepiu. A Canal Plus spokewoman said financial details will be made public once the legal documents have been signed in the coming days.

Premiere is currently owned by Canal Plus , Kirch and Bertelsmann. The sale of the stake by Canal Plus would allow the French group to leave the German market while the two German companies - which only a year ago were bitter rivals working on separate plans to launch digital satellite television services - can control the pay televison service. Canal Plus already owns a 45% stake in Telepiu following its merger with Nethold.

The equity swap, which gives Kirch control of the pay-TV network Premiere, was one of the possible solutions that Canal Plus had envisioned for the sale of its stake the company. French press reports have valued Premiere at 13 billion French francs. Premiere was created six years ago and now has 2.5 million subscribers and capital equity of 2 billion Deutsche marks.

The Kirch group currently holds a 25% stake in Premiere, while Bertelsmann owns a 37.5% stake. Earlier Wednesday, it was announced that Kirch had reached an agreement with Deutsche Telekom AG and media group CLT/UFA on the liberalization of Germany's digital cable television market. CLT-UFA is the media group resulting from the merger of the television operations of Cie Luxembourgeoise de Telediffusion and Bertelsmann's UFA broadcasting unit earlier this year.

According to the agreement, Telekom will establish and operate a 'neutral and technical' platform for digital programming on cable television. The platform will allow all broadcasters access without discrimination, Telekom said. Every household can be fitted with a digital decoder.

Premiere, which is an analog service, will be converted to a standardized digital service under the agreement.

[06] German industrial output slips 0.2% in May

In a preliminary report, the Economics Ministry said that on a year-on-year basis, not adjusted for seasonal influences, May output was down 3.6%.

The ministry noted that the marginal month-on-month decline should be taken in the context of the strong upward revision of April's data.

It also said, however, that the May data is still preliminary, and that due to fewer workdays in May compared with April, 'it must be expected that the most recent figures will be revised downward' at a later date.

Preliminary April month-on-month data released last month was revised sharply upward, as expected. April output was revised upward to show an increase of 0.3% from March, compared to the 1.3% fall originally reported. April year-on-year output was also revised upward to show a rise of 9.1% from the comparable period the previous year, instead of the 7.2% rise reported last month.

[07] DIW sees Germany 1997 deficit/GDP at 3.4%

In west Germany, the economy would grow 2% in 1997 and 1998, while expanding around 1.5% during the same period in east Germany. Jobless levels would hit 4.4 million in Germany this year and more than 4.6 million next year, it said.

However, DIW warned against the recent decimal point discussion concerning the deficit norm. 'If 3% is achieved through accounting tricks, this could endanger the stability of the euro more than a value of 3.3% without such tricks,' DIW said in the report.

[08] European Union investigates suspected illegal British beef exports

If substantiated, the beef exports would be a violation of a ban on all British beef imports, imposed by the EU executive Commission in March 1996.

'An inspection in the United Kingdom confirmed suspicions that quantities of British beef have been fraudulently exported to certain member states and third countries,' according to a Commission statement.

Commission officials said all EU member countries have been informed about the investigation, and instructed to improve oversight of their meat import procedures.

The Commission declined to disclose the quantity of British beef involved or which countries are alleged to have imported the meat.

A ban on British beef imports was put in place last year, after a potential link was established between mad cow disease - also known as bovine spongiform encephalopathy - BSE - and a fatal human ailment called Creutzfeldt-Jakob Disease.

[09] KLM may sell its 19.5% stake in NorthWest Airlines, reports say

According to transport analyst Richard Brakenhof with MeeesPierson, the market is speculating that the news of the possible sale is a green light for an alliance between KLM, American Airlines and British Airways.

KLM has been searching for a strategic partner in Europe. ''But I don't believe that scenario,'' Brakenhof added. ''I am assuming the alliance will go ahead and that this will just solve some negotiation problems between the two.'

Meanwhile KLM fueled speculation by announcing that Northwest has decided to stop the joint sale of tickets with KLM Royal Dutch Airlines on Aug. 1.

A KLM spokesman said KLM, which has a 19.5% voting stake in the U.S. carrier, had taken ''note of the decision.''

[10] Nike's profit rises 16%

The shoe and apparel maker reported that net income for the quarter ended May 31 rose to $155.8 million, or 52 cents a share, from $133.7 million, or 45 cents a share, a year earlier. Revenue jumped 28% to $2.37 billion.

Nike's per-share earnings were a penny shy of consensus estimates by analysts, according to First Call Corp. Last month, Nike warned that earnings would be lower than forecasts, and analysts revised their estimates to 53 cents a share.

The company said orders for athletic footwear and apparel for delivery between June and November were $4.9 billion, up 18% from a year earlier, a figure that was damped by currency fluctuations. That compares with 34% order growth reported in the past quarter. Alice Ruth, an analyst at Montgomery Securities, said order growth 'could be an issue' because inventory rose more quickly, at about 44% above the year-earlier quarter.

Nike executives gave further cautionary notes in a conference call with analysts, telling them to expect earnings growth to slow by an unspecified amount in the current fiscal year and predicting revenue growth in the range of 15% to 18%.

Though a Nike spokesman said it didn't quantify order growth, Jennifer Black Groves, an analyst at Black & Co. in Portland, said its statements point to growth in the single-digit range. The company also said it was encountering resistance to shoes priced at more than $100 and would target the $70 to $100 price range for the spring of 1998, Ms. Ruth said.

The company released its earnings after stock markets had closed. Nike's shares fell 37.5 cents to $58 a share in New York Stock Exchange composite trading. Despite the warnings, Nike Chairman Philip H. Knight noted the just-ended fiscal year was the best in the company's 25-year history, adding that Nike remains on track for a record annual performance, driven by strong overseas demand.

Ms. Groves said she lowered her estimate to $3 a share for fiscal 1998 from $3.10 a share. But she said she would keep her 'buy' recommendation, based on positive news such as solid growth in golf products endorsed by Tiger Woods.

For the year, the company reported earnings of $795.8 million, or $2.68 a share, up 44% from $553.2 million, or $1.88 a share. Revenue rose 42% to $9.19 billion.

[11] Corporate and Economic Briefs

French petroleum giant Total is close to signing a contract with the Iranian government and negotiating a deal with Iraq on oil production there, the company's chief executive said in an interview. 'We are not far from reaching (a contract) in Iran,' Total Chairman Thierry Desmarest told the daily Les Echos, without elaborating on the details of such a deal.

British plastics group Bunzl said it agreed to buy American Filtrona for a total of about $178 million cash, or $46.52 per share. The letter of intent came less than a week after American Filtrona terminated a deal to be acquired at the same price by WBT Holdings LLC, a company owned by several trusts of the family of the late Walter Bunzl.

The number of corporations registered insolvent in Germany rose 2.2% in April compared with a year earlier, the Federal Statistics Office in Wiesbaden reported, with 2,234 cases registered. In western Germany, April insolvencies declined by 0.3% on the year, with 1,558 cases. Insolvencies in eastern Germany in April were up 8.5% at 676 cases. In the first four months of 1997, 8,671 corporations registered insolvent in Germany, a rise of 4.8% on the year, the agency said. In that period, western German insolvencies rose 5.0% to 6,200 and eastern German insolvencies were up 4.3% with 2,471 cases.

German car maker Ford-Werke said group sales in the first five months of 1997 were 11.1 billion Deutsche marks ($6.5 billion), down 5.5% from the year-earlier period. The decline in sales stems from lower unit sales during the period, Ford said. Unit sales totalled 456,700 automobiles in the first five months, down 9.5% from a year earlier. Production fell 12% to 394,500 units. The company didn't provide comparative figures. 'It is becoming increasingly difficult to stabilize unit sales at the high levels of previous years,' Ford said. In 1996, Ford had total unit sales of 1.11 million cars.

[12] World News Briefs

A bridge collapsed outside Iran's capital, killing four people and injuring five others, the official Islamic Republic News Agency reported. A truck and a car were buried under the rubble of the bridge that fell Tuesday night, the news agency said. The bridge, 30 kilometres (20 miles) southeast of Tehran, was probably damaged from nearby excavation work for new roads, IRNA quoted Tehran's mayor Dawood Tajeran as saying.

Pakistani authorities arrested hundreds of religious extremists, and another Sunni Muslim activist was gunned down, the authorities said. Tariq Farooqi, a cleric with the militant Guardians of the Friends of the Prophet, was returning home after saying his morning prayers at a religious school in Lahore when gunmen came up beside him and opened fire, police said. His attackers fled as bystanders scurried for cover. Farooqi died instantly of two gunshot wounds to the head, witnesses said.

Israeli troops shot dead a Palestinian youth during a clash near a Jewish settlement in the self-ruled Gaza Strip, Palestinian hospital officials said. They said Maher al-Assar, 16, was dead upon arrival at Shifa hospital after being shot by soldiers in the head.

[13] Windfall tax will raise £5.2 billion for welfare-to-work scheme

The other industries referred to include BAA, British Telecommunications and Railtrack. But British Airways was surprisingly absent. BAA and BT had argued vociferously in the weeks leading up to the budget that they shouldn't be included in the windfall levy because they don't operate as monopolies or near monopolies, as most of the power and water companies do.

Altogether, the government expects the windfall tax to raise a total of £4.8 billion over two years, taking into account the reduction in the gas industry levy of £400 million over three years. The £4.8 billion figure is towards the top of the estimate range of many market observers and sector analysts.

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

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