European Business News (EBN), 97-07-30

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

Page last updated Wed, July 30 5:46 PM CET

CONTENTS

[01] Northwest agrees to buy back KLM's stake in four tranches

[02] B.A.T holds first half dividend at current levels

[03] Canal Plus sets digital plans in Italy

[04] EU gives formal clearance to Boeing, McDonnell Douglas merger

[05] EU clears way for GAN to receive subsidies

[06] U.K. judge rules in favour of Bank of England

[07] Japan industrial output falls 3.1%, further than forecast

[08] Banco Santander first-half net rises 31%

[09] Japanese regulators punish Nomura, Dai-Ichi Kangyo

[10] Glaxo's results are likely to suffer a double blow

[11] Apple shares surge amid reports of Jobs becoming chairman

[12] Guardian Royal posts 23% fall in trading profit

[13] Danone posts 5.3% rise in first half sales

[14] Corporate and Economic Briefs

[15] World News Briefs

[01] Northwest agrees to buy back KLM's stake in four tranches

Analysts said they expect finding a European partner will be the main priority for KLM now the problems with the U.S. carrier have been resolved. Earlier, KLM and Northwest announced they had reached an agreement on a long-term alliance.

KLM will sell its 19% stake back to Northwest for between $1.07 billion and $1.17 billion in four tranches. KLM purchased the stake in Northwest for $400 million. The two partners said they aim to close the first tranche of 6.8 million common shares of Northwest within 60 days.

The sale will reduce KLM's stake to 17%. The sale of the three remaining tranches will reduce the stake to 13% in 1998, 10% in 1999 and zero in 2000.

'They (KLM) will make a nice book profit,' said Pieter van Gelder, analyst with Delta Lloyd Bank in Amsterdam, adding the price for the 19% stake was seen as normal. Chris Avery, analyst with Paribas capital markets in London, said the price looked 'good' and is above his expectations. KLM's shares rose on the news.

A deal, including the sale of the stake, had been widely expected as the relationship between the two carriers turned more and more tumultuous. In 1995, KLM sued Northwest and its controlling shareholders for breach of agreement after the adoption of a 'poison pill' plan designed to prevent hostile takeovers and which limits any investor from owning more than 19% of Northwest's shares.

Northwest alleged that KLM tried to gain control disproportionate to its stake in the US carrier, while KLM maintains that it is being deprived of its rights to boost its stake.

This case, and another in which KLM is demanding $150 million for the loss of the right to buy more shares, will now both be dropped. It wasn't the latest chapter of unease between the partners.

In July, Northwest announced it would stop the sales of joint tickets with KLM on Aug. 1, in an attempt to speed up the negotiations. But in the joint declaration, the carriers said they would now further intensify cooperation and added that the teamwork could lead to the most 'far reaching alliance' in the sector.

The sale of its stake in Northwest could make it easier for KLM to find a European partner.

[02] B.A.T holds first half dividend at current levels

In a statement attached to the group's half-year results, the company said a landmark settlement of legal claims against the tobacco industry in the United States announced in June was unlikely to affect other countries.

'Shareholders may well be concerned about whether the proposed resolution will also affect other countries. We do not consider that it will,' said chairman Lord Cairns.

The dividend payout is held at 10.0 pence a share in the six months to June 30, but the tobacco-to-financial services company is confident of paying a final base dividend of not less than last year's 16.0 pence a share.

Pretax profits were lower than anticipated, down 5% to £1.25 billion ($2.1 billion) from last year's £1.31 billion mainly due to sterling's strength. Earnings per share fell 9% to 23.4p from 25.7 pence a share.

Trading profit from financial services rose 6% to £593 million, with good performances from Farmers Group, Allied Dunbar Assurance, and Canada Trust. Profit from the general business grew 4% to £346 million and 9% up at the life assurance companies to £247 million.

[03] Canal Plus sets digital plans in Italy

The plan combines Canal Plus and its Telepiu SpA pay-TV unit in Italy with state broadcaster RAI and communications groups Mediaset, Cecchi Gori and state-owned Telecom Italia SpA. It also reduces the chances of a pay-TV rival emerging against Telepiu, now alone in the market. The preliminary accord will be finalized and outlined in detail at the end of September. Financial terms of the accord weren't disclosed.

The accord ends uncertainty surrounding the possibility of a competing pay- TV platform being launched in Italy to rival Telepiu - currently the only such service on the Italian market - by incorporating the companies that might have built up a rival platform. It also represents a further consolidation of Canal Plus' development in Italy. Early this month, the French group exited the German pay-TV market when it traded its stake in German pay-TV concern Premiere for another 45% stake in Telepiu, owned by German media magnate Leo Kirch.

The common digital-TV platform that will result from the accord will likely be controlled by Telepiu, in which Canal Plus plans to sell a partial stake to its Italian partners. Canal Plus has been negotiating such a sale with RAI, telecoms operator Stet and others for some time, in line with the French group's strategy of involving local partners in foreign markets in which it operates.

The move should soothe the Italian government, which has periodically threatened to take away Telepiu's terrestrial broadcast licenses to satisfy protectionists who complain that Telepiu is foreign-owned.

[04] EU gives formal clearance to Boeing, McDonnell Douglas merger

Official approval from the EU's executive agency, the European Commission, was widely expected after Boeing offered a package of concessions last week, including a pledge to scrap exclusive supply contracts with US airlines.

The merger is now clear to start business as scheduled on Monday.

After last week's compromise, the European Commission's approval was widely seen as a formality and the deal was approved by the 20-member Commission without further debate. EU governments in 1990 granted the Commission powers to investigate large mergers and to veto those judged to distort fair competition within EU markets.

Although the Commission could not block the fusion of the two US companies, it could have excluded them from the important European market and imposed fines of up to $4 billion. With the Commission refusing to approve the deal and US officials warning of a trade war if the Europeans blocked it, Boeing finally came up with the required concessions on July 22, a day ahead of a deadline set by the EU.

Boeing agreed to drop clauses in contracts that committed three US airlines to buy aircraft exclusively from Boeing for 20 years. Boeing also pledged not to negotiate any similar deals for the next 10 years.

The Europeans had insisted on the scrapping of the exclusive supply contracts which would have shut out Boeing's only rival - the European consortium Airbus Industrie - from a large slice of the US market.

Boeing also agreed to maintain the civil aviation business of McDonnell Douglas as a separate legal entity for 10 years.

To meet EU fears that Boeing's civil side would benefit from the alliance with McDonnell strong military aviation business, Boeing said it would allow competitors access to certain technological data gained through defence work.

[05] EU clears way for GAN to receive subsidies

The aid is linked to series of strict conditions, including that GAN must sell its real estate unit, Union Industrielle de Credit, and its real estate financing company, Union pour le Financement d'Immeubles de Societes, as well as a variety of other assets.

Under the terms of the agreement, which was widely expected, GAN must also reduce its commercial presence on the French market by 50%, the Commission said in a statement.

Last year, the Commission approved a capital increase of 2.86 billion francs for GAN which was linked to an earlier restructuring plan. However, the French government said earlier this year that the measures envisaged hadn't gone far enough to turn the company around. In March, France applied to inject more money into GAN, and this request was accompanied by a revised plan to revamp the company.

The decision to bail out GAN is the one of the biggest state aid cases handled by the Commission, and the first such subsidy injection under the new French Socialist government. It is also the latest in a series of French financial disasters to crop up on the Commission's adjudication table.

GAN was seriously hit by the real-estate crisis in the early 1990s and says such losses have cost the company some 30 billion francs over the last three years.

[06] U.K. judge rules in favour of Bank of England

The judge threw out a lawsuit in which BCCI liquidators sought £550 million ($900 million) from the Bank of England, saying there were no grounds for a court battle because banking regulators did not 'dishonestly' mismanage the BCCI affair. International banking regulators closed the Bank of Credit and Commerce International in July 1991 after uncovering what has been described as history's biggest banking fraud.

Depositors and other creditors of the Third World bank were owed some $10.5 billion. Liquidators from the accounting firm of Deloitte and Touche went after the Bank of England in what they acknowledged was an action destined to test murky legal waters in Britain. The liquidators argued that if the Bank of England had been more careful about letting BCCI get into business and stay in business in Britain, the depositors would not have lost their money. The High Court judge, Sir Anthony Clark, threw out the lawsuit, saying it had no merit despite many damning conclusions of an official report into the central bank's handling of the BCCI case.

The liquidators had no 'arguable case that the bank dishonestly granted the license to BCCI, or dishonestly failed to revoke the license in circumstances when it knew, believed or suspected that BCCI would probably collapse,' the judge said. The Bank of England said it had 'always maintained that the claims made against it were misconceived.' 'The bank welcomes the fact that, after a careful review, the High Court has confirmed that there never was any factual basis to support the allegation that it acted dishonestly or in bad faith,' the central bank said in a statement. But the Bank of England's image was badly tarnished by the BCCI affair. The newly elected Labour government said last month it would strip the central bank of its power to supervise commercial banks.

The liquidators recently made payments that give the victimized depositors 24.5 cents on the dollar - and they plan a further payment late this year that will come to another 10 cents on the dollar or perhaps a little more. The liquidators are also suing BCCI's old auditors, in separate cases seeking to recover $3.5 billion from the accounting firm Price Waterhouse and $1.7 billion from the accounting firm Ernst and Young.

[07] Japan industrial output falls 3.1%, further than forecast

The decline in June was larger than the 2.8% fall that economists surveyed by Dow Jones had on average forecast. MITI said last month that it expected June output to drop 2.6% from May.

MITI said industrial output is still in a moderate upward trend. A MITI official briefing reporters on the data noted that industrial output was unchanged in the April-June quarter compared with the prior quarter. He said the ouput index reading for that three-month period, at 102.6 for the second straight quarter, remains at its highest level since the third quarter of 1991, when it registered 102.7.

'Industrial output is still at high levels,' said Hideo Nakanishi, head of MITI's statistics analysis bureau.

Nakanishi added that there were special factors weighing on output in the latest quarter, including the April 1 increase in the consumption tax to 5.0% from 3.0%.

MITI forecast that output would increase 1.3% in July from August, before slipping 0.5% in August. Nakanishi said that if September output is unchanged from August, the output in the July-September quarter would rise 0.3% from the latest quarter and increase 7.6% from the prior year period.

[08] Banco Santander first-half net rises 31%

A bank spokesman said that retail banking continues to be Banco Santander's 'motor for growth,' driving net interest income up 25% to 238.8 billion pesetas from 191.7 billion pesetas. Operating profit jumped 23% to 115 billion pesetas from 93.6 billion pesetas.

'This is the highest profit the bank has ever achieved,' the spokesman said. Furthermore, he added, 'the increase in profit seen in the first half is sustainable for the rest of the year.'

Banco Santander said that the consolidation of new acquisitions in Latin America and the purchase of information systems in Spain led to a 28% increase in expenses to 236.8 billion pesetas. Nonetheless, the bank's Latin American activities contribute greatly to the group's profit, representing some 22 billion pesetas in net attributable income.

Results from Banco de Venezuela, Banco Santander Mexicano, Chile's Banco Osorno y la Union and BCH Puerto Rico are included for the first time in Banco Santander's balances this year.

While the bank's first-half profits surpassed analyst's expectations, Banco Santander stock fell to 4105 pesetas ($26.43), down 165 pesetas, or 3.9%.

[09] Japanese regulators punish Nomura, Dai-Ichi Kangyo

The punishments will shut down key divisions of Nomura Securities. and Dai- Ichi Kangyo Bank until the end of the year, the Finance Ministry announced.

Nomura and Dai-Ichi Kangyo are accused of paying off a reputed corporate racketeer - Ryuichi Koike - to keep him from revealing company secrets and scandals or disrupting shareholders' meetings. Under the penalties, Nomura will be forced to stop the lucrative business of trading stocks on its own account until the end of the year. The brokerage will not be allowed to underwrite government bonds for the period.

Nomura's headquarters will also be closed for a month and the company will be banned from all stock transactions for a week. Dai-Ichi Kangyo Bank will be barred from making any new loans to businesses for five months, the ministry said. The bank is banned from underwriting government bonds and will be barred starting next month from setting up new branches or businesses anywhere in the world.

Nomura's President Junichi Ujiie told reporters he accepted the punishment and would make efforts to make sure it doesn't happen again. The company scheduled a news conference for later.

Meanwhile, the scandal surrounding Koike widened when prosecutors raided the head office of Yamaichi Securities, another top brokerage. Yamaichi is suspected of funnelling about 79 million yen ($679,000) to Koike in 1995.

Nationally broadcast TV footage showed dozens of dark-suited investigators entering the company's headquarters in central Tokyo. Prosecutors also searched several other offices related to Yamaichi, local media reported.

[10] Glaxo's results are likely to suffer a double blow

Analysts project that first-half pretax profit will be almost flat at between £1.47 billion and £1.55 billion ($2.4-2.5 billion), from £1.5 billion a year earlier. The dividend is expected to be maintained at 15 pence per share.

The effects of sterling's inexorable rise over the past six months could result in broadly flat sales and profits, while the loss of US patent protection over Zantac gives an added dimension of doubt over future earnings.

The anti-ulcer product used to account for around 49% of sales, but has steadily declined to its present 23%, though it is still the world's biggest-selling prescription drug. Glaxo expects Zantac's contribution will drop to a comparatively paltry 10% of sales, owing to competition from Novopharm's cheaper generic rival.

However, Glaxo is confident that a new wave of drugs, such as Flovent and Immigran, will restore the company to double-digit earnings growth over the next two-to-three years.

Glaxo has also set an ambitious target of bringing three 'significant new medicines' per annum to the market from the year 2000 onwards, and says it is well on track to achieve this.

[11] Apple shares surge amid reports of Jobs becoming chairman

The rumours were first reported in the San Francisco Chronicle, which said the announcement would be made at the Macworld Expo conference Aug. 6 in Boston. However, the paper also cited sources saying that the Jobs apointment was not assured.

Jobs resigned as chairman of Apple in September 1985 after a bitter dispute with the company's management over his plans to start another computer company. He was brought back recently as an advisor.

[12] Guardian Royal posts 23% fall in trading profit

The U.K. composite insurer failed to please analysts with a share buy-back plan as it reported pretax profit of £502 million for the six months ended June 30, up 117% from £231 million a year ago. However, the pretax profit figures for both periods include investment gains of £380 million and £90 million respectively.

Chief Executive John Robins said the fall in profits was largely the result of sterling's strength which reduced investment income by £14.5 million and trading profit by £9.5 million.

[13] Danone posts 5.3% rise in first half sales

The French food and drinks group said sales of dairy products increased by only 1.9% to 11.35 billion francs while those of grocery products and pasta declined by 3.1% to 7.66 billion francs. Danone said sales of drinks declined by 1.4% in the first half of 1997 compared to the same 1996 period, to 7.57 billion francs.

Offsetting the lacklustre performance in these product areas, Danone's international sales jumped by more than one-third to 9.42 billion francs from 6.95 billion francs a year before, an increase of 36%.

Danone's chairman, Franck Riboud, has set an objective of achieving annual sales of 30 billion francs outside France by the year 2000, partly through acquisitions.

[14] Corporate and Economic Briefs

U.K. EMAP sold 14 business publications and associated products, along with its shareholding in one exhibition, to Croydon-based Quantum Publishing for £14.1 million in cash and loan notes. According to a statement from EMAP, the sale includes the magazines, Media Week and Bathrooms & Kitchens among others. In the year ended March 31, the businesses being sold had sales of £13.6 million.

Norway's largest commercial bank Den norske Bank said it will increase interest rates for private customers by 0.5 percentage point from September 15 this year. The bank's interest rates vary according to the size of customers' loans and whether they do all their business with the bank.

French car maker PSA Peugeot Citroen said first-half 1997 revenues rose 6.3%, thanks to strong foreign sales that compensated for a very weak French market. First-half revenues rose to 94.64 billion francs ($15.4 billion) from 89.04 billion francs a year earlier, despite a 23% drop in the number of cars PSA Peugeot sold in France. The car maker reported nearly flat first-quarter revenues of 43.51 billion francs. Revenues in France fell 12% to 35.1 billion francs, while foreign sales rose 21% to 59.5 billion francs. PSA Peugeot said it sold 1,094,400 vehicles worldwide during the first half, up 7% from 1,022,500 a year earlier.

[15] World News Briefs

Algerian government forces killed eight suspected Muslim militants in the latest of a series of raids against Islamic insurgents, a newspaper reported. Troops launched an assault on militants in the mountain town of Djebel Mokournou, about 170 kilometres south of the capital Algiers, said the independent French-language daily El Watan. The local leader of the armed Muslim fighters, Abou Myriem, was among those killed in the operation on Saturday, the newspaper reported. In a separate incident, a suspected Muslim militant was killed yesterday by security forces in the centre of Algiers after a shootout with security forces, the Liberte newspaper reported.

Gunmen killed two Shi'ite Moslem activists in Sahiwal town in the central Pakistani province of Punjab on, police said. They said activists Syed Abid Hussain Bukhari and his son Hyder Abbas Bukhari, both lawyers, were attacked when they were going to local courts in Sahiwal, 170 km (106 miles) southwest of Lahore. The two died instantly when two gunmen riding a motorcycle fired several bullets from an automatic weapon, police added.

A flash flood in Colorado killed at least five people and injured 40 in and around Fort Collins. Twenty others remain missing. Heavy rains had backed up behind a railroad embankment that broke while most people were asleep. Colorado State University sustained an estimated $20 million in damage.

Turkish police used clubs and water cannons to break up an Ankara demonstration by about 15,000 people protesting against the new secular government's plans to curb Muslim schools. At least 13 protesters were injured. Prime Minister Yilmaz criticized police tactics and suspended three officers.

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

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