European Business News (EBN), 97-08-21

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

Page last updated Thu, August 21 5:05 PM CET

CONTENTS

[01] MCI and BT review terms of their $20.8 billion merger

[02] Viag says dividend payment won't be until May 1998

[03] ABN AMRO first-half net profit rises 20% to $994 million

[04] Halifax plans diversification into non-traditional lines

[05] Export demand for UK goods hits lowest level in nearly five years

[06] SmithKline lab division sued by US health insurers

[07] SAirGroup returns to profit in first half

[08] Norske Skog profit plummets 94% in first half

[09] Bergesen swings to a loss of $1.5 million

[10] Honda shows 36% gain in first-quarter earnings to $528 million

[11] Corporate and Economic Briefs

[01] MCI and BT review terms of their $20.8 billion merger

MCI said the discussions were prompted by a review of both companies' prospects. BT, which said it was disappointed with MCI's outlook, said it needed to get a better handle on MCI's prospects before considering whether to alter the terms of the deal.

MCI spokesman Frank Walter said it was too early to predict any changes in the terms of the merger, which was valued at $20.8 billion in cash and stock late last year.

After suffering in ignomious silence, BT seems finally to have grabbed the whip hand in the merger talks. That, analysts say, is the upshot of the statements released overnight Wednesday that the companies are reviewing the financial terms of their merger.

'If BT are going to renegotiate, they're in an extremely strong position,' said Andrew Moffat, telecoms analyst with Societe Generale Strauss Turnbull in London.

He said that BT could demand a 10% cut in the $28 billion cash and shares offer. MCI executives, he noted, would either have to convince shareholders to accept the cut or face the prospect of the company's stock plunging to around $20 per share. The market reaction Thursday lent further weight to that view.

'The market is obviously assuming there's going to be a price adjustment,' said a trading director with a US investment bank.

Shareholders of British Telecom have been upset with the price their company agreed to pay for MCI. The US long-distance company, the country's second-largest, said last month it could lose up to $800 million this year as it strives to break into the US local market.

BT has said it expects to complete the review of the merger by the end of August but has otherwise remained tight-lipped on its progress.

[02] Viag says dividend payment won't be until May 1998

Viag Chairman Georg Obermaier also said he sees potential for the dividend on 1997 earnings, according to a German financial newswire.

In a statement released by the company, it said 'it is too early for an indication regarding the dividend for 1997, and this will be decided by the supervisory board in May.'

Earlier in the day, Viag released half-year earnings data, showing a rise in first-half pre-tax profit to 1.50 billion Deutsche marks ($800 million), from 1.18 billion marks a year earlier while sales rose 12% to 23.8 billion marks. Adjusted for consolidations and sell-offs, sales were up 7%, Viag said.

Capital goods investment in the period rose to 916 million marks from 792 million marks. Other investment was considerably higher, due to acquired majority shares in the energy unit Isar Amperwerke and the chemical unit Th. Goldschmidt, Viag said.

For the full year, investment will flow primarily to energy and telecommunications operations, Viag said, 'in order to secure a good position in the liberalised European energy market and to maintain the planned expansion of Viag Interkom (telecoms) to become the group's fifth growth-oriented division.'

In the first half of 1997, capital goods investment in Viag's energy division was up 109 million marks to 415 million marks, from 306 million marks in the year-earlier period.

However, Viag said earnings would improve this year despite investments, on the back of continued restructuring measures and healthy economic conditions.

'For 1997, we're optimistic that we can further increase sales and earnings considerably, despite the start-up costs for telecommunications,' Viag said in a statement.

Together with its partners British Telecom and Norwegian telecommunications operator Telenor, Viag said it plans to invest around 7.5 billion marks in telecommunications activities over the next 10 years, and an additional 1.0 billion marks in planned follow-up investment.

[03] ABN AMRO first-half net profit rises 20% to $994 million

The increase in the bottom line was caused mainly by the strong rise of the dollar against the guilder, the sale of merchant bank MeesPierson, and the acquisitions of the Standard Federal Bancorp and the Chicago Corporation of the U.S. Both acquisitions were consolidated from Jan. 1, 1997.

Total revenue at ABN rose 22% to 11.36 billion guilders. Adjusted for other acquisitions, the MeesPierson sale and higher exchange rates, revenue increased 19%.

The first-half results are at the low end of expectations. Analysts surveyed by Dow Jones estimated an increase of net profit of 18% to 30% to between 1.99 billion guilders and 2.21 billion guilders.

ABN AMRO said the results were a strong improvement from the 'already excellent figures in the first half of 1996,' and added it is optimistic about the remainder of the year.

'The second-half net profit will also be up compared to the same period of last year,' the company said in a news release.

[04] Halifax plans diversification into non-traditional lines

Speaking at a press briefing following the release of the group's first half results earlier today, Blackburn added the bank aims to garner at least one-third of profit from non-traditional lines within five years.

Currently, Halifax derives about 86% of its profit from traditional business lines such as mortgages and savings products.

Blackburn said the bank will achieve its diversification goal primarily through acquisitions, although he declined to say if it would be a collection of small deals, or large ones.

'Often small fish are the sweetest,' he said. 'But we wouldn't turn away from a big one.'

Halifax divides its operations into six main business groups; mortgages, liquid savings, consumer credit, personal lines insurance, long term savings and protection, and treasury.

Neither Blackburn or Halifax Chairman Jon Foulds would say which areas they aim to make acquisitions in. However, Blackburn indicated that in order to meet its goal of diversifying income streams, acquisitions are not likely to be made in the mortgages and savings field.

Management confirmed analysts calculations that the bank has approximately £3.5 billion ($5.6 billion) of capital on hand for acquisitions.

Earlier in the day Halifax revealed pretax profit in the first half rose 8.8% to £802 million and said it won't pay its first dividend until May 1998.

[05] Export demand for UK goods hits lowest level in nearly five years

However, domestic demand continued to improve, and overall manufacturing order books were unchanged in August.

In addition, the CBI warned that although Britain will enjoy further economic growth for the remainder of the year, the economy will slow in 1998.

The growth outlook for 1997 reflects buoyant consumer demand due to higher real incomes and the larger-than-expected value of windfall gains from building society conversions into banks. But next year is expected to show a decline in exports and more moderate increases in consumer demand.

The CBI predicts that gross domestic product is set to fall to 2.5% next year from 3.1% for all of 1997. GDP in the second quarter grew at a rate of 3.4% over the year earlier quarter, according to official government statistics. Underlying retail price inflation is expected to slow to 2.3% by the end of 1997 from its current rate of 3%, but the CBI expects inflation to accelerate to 2.7% in 1998. 'Our survey shows divergent trends in manufacturing demand,' said the CBI's Sudhir Junankar, associate director of economic 'Although domestic demand goes on improving, supporting expectations of higher output in the coming months, sterling's strength continues to hit companies' ability to win overseas orders.

The survey showed that 11% of manufacturers said their order books were above normal, compared with 48% who said they were below normal. The difference between the two, a net balance of 37 percentage points reporting sub-normal export demand, compares with 29 points in July.

Overall demand for manufactured goods was unchanged in August from July thanks to improved domestic demand, with a net balance of 5 percentage points saying their order books were below normal. This was down slightly from the net balance of 3 points reporting weaker demand in June.

Output expectations moderated in August with the net balance of companies expecting to increase production over the next four months falling to 16 points from 21 points in July.

On a more positive note, the CBI said 'the prospects for output price inflation remain highly promising,' with the net balance of companies expecting to cut prices over the coming four months remaining at 3 percentage points - the lowest monthly figure since Aug. 1993. The survey found that a net balance of 14 points said stocks of finished goods remain more than adequate to meet demand, down from 18 points in July and 21 points in June.

[06] SmithKline lab division sued by US health insurers

The suit comes six months after SmithKline agreed to pay $325 million to settle similar charges of overbilling involving Medicare and other government health programs.

In their suit, filed in federal district court in Hartford, Conn., the private insurers acknowledge that many of their allegations closely parallel the earlier federal case. But the private insurers go on to allege what their suit terms 'more extensive fraud' involving kickbacks to doctors, fabricated diagnosis codes and the involvement of senior management at SmithKline's lab division.

The insurers' suit drew a heated response from London-based SmithKline, which is one of the world's largest drug companies and a leader in medical testing. A U.S. spokesman for SmithKline said the circumstances described in the suit are 'grossly exaggerated, and the legal basis for recovery is highly questionable.' He said the insurer denies defrauding any insurance companies and will vigorously defend itself.

Among the companies bringing the suit are Blue Cross of California, the Aetna Life Insurance Co. unit of Aetna Inc., New York Life Insurance Co., Humana Inc. and Prudential Insurance Co. The companies bringing the suit said that together they represent about 37% of the nation's private health- insurance industry.

The suit's most explosive charge is the claim that the lab division's conduct from 1989 to 1995 amounts to a violation of the federal Racketeer Influenced and Corrupt Organisations Act. Under that statute, known as RICO, plaintiffs can be awarded triple damages if their claims are upheld in the courts.

The insurers didn't specify an exact amount of damages sought, beyond saying that they want the return of 'hundreds of millions of dollars' paid to SmithKline's lab division. But one insurance executive associated with the suit said that under the triple damages provision, insurers are seeking as much as $1.5 billion in total.

In the suit, SmithKline is accused of billing insurers for tests that doctors didn't order, billing for tests that doctors thought wouldn't cost extra, billing insurers twice for the same procedure, and billing insurers for more expensive tests than ordered or performed. That last practice is known as 'upcoding.' The insurers also accuse SmithKline of inserting fabricated diagnosis codes to get reimbursements, a practice known as 'code jamming.'

[07] SAirGroup returns to profit in first half

Over the same period, operating profit rose 149% to 251 million Swiss francs from 101 million Swiss francs, while cash flow increased 45% to 518 million Swiss francs from 357 million Swiss francs, and sales climbed 33% to 4.80 billion Swiss francs from 3.62 billion Swiss francs, the company said in a press release.

The group believes it can improve on the first semester figures in the second half of 1997 'if the economic framework remains favourable.'

The positive half-year result is based on three main factors, SAirGroup said.

Firstly, the economic upturn in Switzerland coupled with the ongoing robust expansion in the U.S. and Asia, boosted demand for air travel and associated services. A favourable foreign exchange rate development and restructuring measures introduced in 1996 also helped, the company said.

The 100% writedown of the equity holding in its Belgium partner Sabena at the end of 1996 means that SAirGroup's earnings are no longer influenced by Sabena's results. Sabena posted a loss of 42 million Swiss francs, or 1.013 billion Belgian francs, thus narrowing its losses 38% from the corresponding year-earlier period, the company said.

[08] Norske Skog profit plummets 94% in first half

In addition, the Norwegian forestry group said earnings were hurt by lower prices for timber products.

But Norske Skog was upbeat in its outlook, saying high demand for its products combined with a strong dollar and pound, should help to boost overall operating profit in the second half above the first half levels.

Looking at the company's specific business areas, the paper division - Norske Skog's biggest money maker - saw its operating profit plummet to 422 million kroner, from 1.262 billion kroner a year earlier.

According to Norske Skog, slow economic growth in Europe contributed to a decline in demand for newsprint, while prices for lightweight coated paper sagged in the first half, compared to the year-earlier period.

In contrast, the Fibber division's performance improved in the first six months of the year, although it still remained loss-making.

The division's operating loss narrowed to 13 million kroner from 85 million kroner on the back of rising demand and prices.

[09] Bergesen swings to a loss of $1.5 million

Bergesen's first-half earnings were affected by the dollar's strength against the Norwegian krone, which forced the company to book an unrealised currency loss of 511 million kroner.

While the strong dollar hurt Bergesen's debt payments and, hence, its bottom line, the buoyant dollar had a positive impact on the company's operating profit since it helped boost shipping freight rates, which are quoted in dollars.

According to Bergesen, the natural gas fleet had a mixed performance in the first half, with some segments showing slight improvements while others declined 19% to 279 million kroner in the six months to June 30.

Meanwhile, the company's tanker activities showed a marked improvement in the period with operating profit soaring 211% to 159 million kroner.

In contrast, Bergesen's dry-bulk fleet saw income decline in the first half, with operating profit sliding to 29 million kroner from 42 million kroner in the first six months of 1996. But looking ahead, Bergesen was vague about the prospects for its overall full-year earnings, saying much will depend upon the level of the dollar.

With regard to the performance of its business segments, however, Bergesen issued an upbeat assessment, saying it expected substantial improvements for tankers, and moderately better earnings from natural gas and dry-bulk.

[10] Honda shows 36% gain in first-quarter earnings to $528 million

Honda's group sales rose by 15% from a year ago to 1.419 trillion yen, while operating profit surged 60% to 110.12 billion yen and pretax profit soared by 42% to 108.03 billion yen.

Group operating profit expanded to 7.8% of sales from 5.6% in the corresponding period last year, as cost-cutting efforts and the depreciation of the yen pushed cost of sales below 70% of sales, compared with nearly 73% last year.

The weak yen particularly underpinned sales in North America. Sales there grew nearly 33% from a year ago to 640.72 billion yen. European sales increased by 25% to 179.41 billion yen. Those gains helped offset the 6.1% decline in domestic sales to 418.07 billion yen. Sales in Japan were hurt by the April 1 increase in the national sales tax to 5.0% from 3.0%.

Honda's overall unit sales of autos rose by 11%, and parts sales rose by 19%, but its sales of motorcycles slipped 0.5% lower to 1.31 million units from 1.32 million units last year.

[11] Corporate and Economic Briefs

BICC and NKF, the Dutch cable and cable systems group, said they'll merge their energy and metallic telephone cables businesses in Germany into a 50/50 joint venture. But the link-up will cost 600 people their jobs. BICC chief executive Alan Jones said the venture 'will constitute a major force in the domestic German cable market, with a leading position in both power and metallic telephone cables'. The full costs of the rationalisation program will only be calculable once consultation with the works councils are complete but BICC said it would be surprised if the costs arising from the rationalisation exceeds £15 million ($24 million).

The merchandise trade surplus in the Netherlands narrowed to 1.88 billion guilders ($900 million) in May from 2.52 billion guilders in the same period a year ago, the Central Bureau for Statistics (CBS) said. In April 1997, the trade surplus was 2.59 billion guilders. The CBS said imports in May totaled 27.95 billion guilders, up from 25.55 billion guilders a year earlier, but down from 31.27 billion guilders in April.

U.K. second quarter gross domestic product rose a seasonally adjusted 0.9% from the first quarter, unrevised from a previous estimate. The Office for National Statistics also reported Thursday that GDP was up 3.4% in the second quarter compared with the same period a year earlier, unrevised from a previous estimate. Services output growth was revised down to 1.1% in the second quarter from the first quarter from a previous estimate of 1.3%

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

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