European Business News (EBN), 97-09-22

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

Page last updated Mon, September 22 6:18 PM CET

CONTENTS

[01] Eurotunnel faces delayed approval for debt restucturing

[02] EU adamant that British Airways and American Airlines should give up 350 Heathrow slots

[03] Fosters, Grand Met sell Inntreprenneur for $1.92 billion

[04] France Telecom IPO share price set at 170 to 190 francs

[05] France's Strauss-Khan says France budget deficit will be about 3% by year-endFor more IMF stories, click here

[06] Seagram, Viacom settle USA Networks dispute

[07] Skandia sells its reinsurance operations to Germany's Ruckversicherung for $508 million

[08] EU reportedly ready to uphold Easyjet complaint against KLM

[09] Solidarity claims surprise victory in Polish elections after the former communist party is ousted

[10] EU clears L'Oreal's acquisition of Spanish cosmetic companies' stock

[11] Southeast Asian markets fall despite US Trade Secretary Rubin's reassurance

[12] Clinton to commit US to paying back UN debt

[13] Securities Exchange Commission launches drive to combat fraud in small- company stocks

[14] MITI to speed up deregulation to spur Japanese economy

[15] Corporate and Economic Briefs

[16] IMF Update

[01] Eurotunnel faces delayed approval for debt restucturing

Although the debt deal is unlikely to be derailed by this latest problem, Eurotunnel was sharply critical of the British government's effort to renegotiate the terms of the deal to extend its operating licence by at least 34 years to a minimum term of 99 years.

The ensuing row overshadowed the fact that the Anglo-French Channel Tunnel operator posted its first operating profit in the six months ended June 30 even though reduced tunnel capacity limited traffic for most of the first half.

Operating profit after depreciation swung to £7 million from a £29.1 million loss a year earlier, measured at constant exchange rates. Eurotunnel said the reorganization of its management structure allowed the company to cut the cost base by 14%, while increased duty-free sales offset the decline in revenue from reduced traffic.

Patrick Ponsolle, Eurotunnel co-chairman, said he believed Britain's revised and increased demands represented '...bad management. It is not good business behaviour.'

'Shareholders will have the feeling once again they have been cheated,' he added.

The row was ignited when the British government confirmed it wanted 'slightly more' than a 25% share in Eurotunnel post-tax profits payable after 2052, a level which was roughly agreed last spring. The French government had not asked for more profits, Eurotunnel said.

The original draft deal also included a commitment to higher freight carriage targets for Eurotunnel, which may be raised further due to fresh British demands.

The British Department of Transport said earlier it was 'sure' it could reach an agreement on the terms for extending Eurotunnel's licence. Ponsolle said he was confident of agreement, but only if the terms originally set out were broadly maintained.

Turning to the company's results, Ponsolle said, 'Revenues are in line with our forecast and costs have reduced more rapidly than anticipated. We are thus meeting an operating objective which was only expected to be reached for the full year.' He said full-year operating profit before finance charges could top the £54 million figure the group held out as its most optimistic scenario in May.

Ponsolle finished by looking ahead, saying that the group had three aims for the year. 'To finalise restructuring. Finalise our commercial recovery and to deliver the promises in our financial prospectus.'

[02] EU adamant that British Airways and American Airlines should give up 350 Heathrow slots

Karel Van Miert told reporters in London the number was not negotiable. 'Horse-trading - I'm not in for such a thing. This number has to stick,' he said. Van Miert added the slots at London Heathrow airport would have to be made available as soon as a potential competitor wanted them.

'If a company wants to take on the alliance, it has to give up the slots immediately -- from day one of the alliance,' said the Commissioner.

He added that if the British airports authority BAA had spare slots free, that could be taken into the equation of how many slots were available for competitors. But, if BAA had no spare slots at Heathrow, Van Miert said the alliance would have to lose the entire 350 slots.

The EU was still waiting for an answer from BA and American. Van Miert denied the Commission was stalling on the deal. 'I'm not going to accept this kind of criticism,' he said. He said the EU was not being overly harsh with BA and American, and pointed out that in the past, smaller alliances involving other European airlines had relinquished as many as 300 slots to get a deal approved.

Van Miert said if the EU had worked on the same basis as it had for past deals, BA and American would be asked to give up as many as 500 slots. _EBN interactive round-up_

[03] Fosters, Grand Met sell Inntreprenneur for $1.92 billion

'The transaction, which signals Foster's Brewing Group's exit from its remaining significant non-core asset, is not conditional on regulatory approval being received,' Foster's said in a statement.

Fosters inherited the pub chains when it acquired Britain's Courage Brewing Group in October 1986. But the owners have faced a string of legal challenges from landlords claiming their targets were set too high.

Foster's Brewing Group said it would offload its 50% stake in the low- return Inntrepreneur Pub as part of moves to exit all of its UK-based non- core investments. Foster's said Grand Pub will pay £1.2 billion for Inntrepreneur, delivering approximately £220 million to the Australian brewing giant, after the repayment of bank debt and fees by Inntreprenuer.

The sale also includes Foster's interest in the Spring Inns pub estate. Foster's president and chief executive Ted Kunkel said he rated the deal 'very highly.'

He said it was unconditional and would reduce Foster's gearing by about 20 percentage points to a 'very, very comfortable' 60%. 'The retirement of the debt will further strengthen our balance sheet and provide us with scope for future growth in our core businesses of beer and wine,' said Kunkel.

The sale would result in a £5 million ($8million) abnormal loss for Foster's, which Kunkel said would be offset interest cost savings.

'Inntrepeneur has been a low-yielding, non-core asset for Foster's ... and the time was right to make a clean exit from our equity investments in the UK,' Kunkel said.

Analysts described Foster's exit from Inntrepreneur as good news, while the market also reacted favorably, pushing the stock up six cents to Australian dollars 2.90 on turnover of 6.26 million.

[04] France Telecom IPO share price set at 170 to 190 francs

Institutional investors will be able to access a further 16 million shares if there is substantial demand, the French Finance Ministry said.

Another 75 million shares will be sold on the market at a discount of 5 francs per share for individual investors at a as-yet-undetermined date. France Telecom employees and former employees will be able to tap about 21 million shares, the government said in a statement.

Earlier, France Telecom said it will raise cash during the second half of 1998.

Chairman Michel Bon said in an interview with French Daily Les Echos that the capital increase will allow German counterpart Deutsche Telekom to take a significant stake in the French phone company. The government has recently said Deutsche Telekom could take a 7.5% stake.

Bon also said France Telecom would pay between 40% and 50% of its 1997 net profit in the form of dividends. Bon said earnings this year could be between 14 billion francs and 15 billion francs (between $2.3 billion and $2.45 billion).

Bon also denied that the company has too many employees, as some analysts contend. He said it has as many employees per phone line as British Telecom.

[05] France's Strauss-Khan says France budget deficit will be about 3% by year-endFor more IMF stories, click here

As for France, he said this year's ratio of budget deficit to Gross Domestic Product will be 'around 3% by the end of the year and maybe exactly 3%.' He reaffirmed the government's target of a 3% ratio for 1998 and dismissed the International Monetary Fund's forecast of 3.2% as 'just wrong.'

Strauss-Kahn said the IMF estimate doesn't account for the government's budget measures that have yet to be announced, notably those relating to the social security system.

He said the government is working actively on that problem, and that he expects to announce new measures for social security in two to three weeks. He didn't provide details.

Strauss-Kahn also reaffirmed the government's growth forecast of about 2.2% this year and 3% next year, which he said would be above the European average. However, he said, it will take some time, maybe even 'a year or so,' before faster growth makes an impact on employment.

[06] Seagram, Viacom settle USA Networks dispute

The deal, expected to close in the fourth quarter, would resolve all litigation between the two companies.

'The sale of USA Networks is another significant step in our continuing commitment to reduce Viacom's debt,' said Sumner Redstone, Viacom chairman and chief executive.

'USA Networks complements our existing entertainment operations and provides a strong platform for future growth, both domestically and internationally,' said Edgar Bronfman, Seagram president and chief executive.

USA Network is a general entertainment channel, with 73 million subscribers. Viacom, which owns Paramount Pictures, MTV and Nickelodeon, and Seagram, which owns entertainment and theme park concern Universal, had each accused the other of violating the terms of the partnership agreement.

The two companies have been negotiating for several weeks. On Sept. 12, they issued a statement that talks had resumed.

[07] Skandia sells its reinsurance operations to Germany's Ruckversicherung for $508 million

Skandia will make a capital gain of 250 million kronor on the deal. Skandia said the sale reflects its focus on Nordic non-life insurance and global long-term savings products.

'What the market likes about this deal is that it streamlines Skandia and really only leaves the Nordic non-life insurance and the global savings and life insurance products operations,' said one analyst at a Stockholm brokerage house.

Hannover Re will take over all facultative, aviation and life reinsurance operations from Jan. 1, 1997. The transaction will boost the Skandia Group's solvency margin to 136% from 116%.

Of the 220 employed by Skandia International in Sweden, around 100 will be offered employment at the branch office that Hannover Re intends to open in Stockholm.

Skandia Chief Executive Lars-Eric Petersen said the sale of the reinsurance operation will mean less volatility in future earnings and the 4 billion kronor released through the sale will be 'used for investments in our core operations.'

Skandia has also decided to sell the remaining run off operations during 1998 and has received an offer that would enable Skandia to divest them without a book loss.

[08] EU reportedly ready to uphold Easyjet complaint against KLM

In the worst case, KLM could face a maximum fine of 1 billion guilders and could be taken by its rival, UK airline Easyjet, to court in London for compensatory damages.

Commission competition authorities are holding closed-door hearings with officials from both KLM and Easyjet, which lodged the complaint against the Dutch carrier.

'The key point is will KLM come back to a price level which reflects their real costs,' the E.U. source said. He said E.U. officials, who raided KLM offices in February, 'found documents that apparently clearly show that this was a tactic used by KLM to kill the competition.'

A spokesman for KLM said the Commission wouldn't come to a decision Monday, but that a committee made up of representatives from the EU countries will begin deliberating on the case presented by both sides and should come with a preliminary verdict in three to four weeks.

He also said he was surprised that Easyjet was holding a press conference because he claimed there was nothing new to report.

[09] Solidarity claims surprise victory in Polish elections after the former communist party is ousted

'All groups that agree to carry our program are considered our potential allies,' said Solidarity leader Marian Krzaklewski.

Solidarity, which won 189 seats in the 460-member Sejm according to preliminary results, will need partners to govern.

Few expected a clear election winner. If Solidarity succeeds in forming a government, it will share power with President Aleksander Kwasniewski of the Democratic Leftist Alliance of former communists.

Krzaklewski is credited with uniting the splintered Solidarity factions, to bring about the election victory, and Walesa has positioned himself to broker a deal with the most likely Solidarity ally, the Freedom Union.

Although the Freedom Union is also rooted in the trade union, a coalition with Solidarity is not a foregone conclusion. The Freedom Union's leaders have a contentious history with Walesa dating from nationwide strikes 17 years ago that forged Solidarity.

Kwasniewski's governing Democratic Leftist Alliance trailed with 27%. Results showed 59% of eligible voters cast ballots, a high turnout that was believed key to Solidarity's strong showing.

Balcerowicz's Freedom Union won 16% of the vote. Among the other parties, the Polish Peasants' Party, which has been aligned in government with the ex-communists, received 7%; the radical anti-communists in the Movement for Poland's Reconstruction garnered 6%; and the Labor Union 5%, just enough to squeeze into parliament. Dozens of smaller parties claimed the rest of the vote.

[10] EU clears L'Oreal's acquisition of Spanish cosmetic companies' stock

The three companies - Procasa, Albesa and Cosmetique Iberica, as well as the latter's affiliate, Cosesa - already manufacture and distribute L'Oreal cosmetics in Spain.

The Commission found that 'the concentration will not have any significant impact on the conditions of competition, given that it merely amounts to the integration of undertakings already affiliated to the L'Oreal Group for a number of years.'

L'Oreal announced in August its plans to buy the 51% of Procasa that it didn't already own, as well as the outstanding stakes in the other, smaller companies, but didn't disclose terms of the deal.

At the time of the announcement, L'Oreal said Procasa had sales in 1996 of about 1.2 billion francs ($200 million). The other companies - Cosesa, Cosmetic Active Iberica and Albesa - together account for sales of about 800 million francs, L'Oreal said.

L'Oreal also said it now holds the outstanding capital of all companies marketing its brands in Spain.

[11] Southeast Asian markets fall despite US Trade Secretary Rubin's reassurance

But despite his confidence that a long-term solution is coming, the region's markets remained troubled and currencies in Southeast Asia continued to fall.

In Southeast Asia's markets, Malaysia's currency, the ringgit, plunged to a new low against the US dollar, while the stock market index sank 3.8%.

Traders blamed Malaysian Prime Minister Mahathir Mohamad's reported threat Sunday to impose currency controls, even though his deputy prime minister quickly denied it.

The Thai baht, whose weakness triggered Southeast Asia's summer of turmoil, weakened as traders awaited a no-confidence vote in Prime Minister Chavalit Yongchaiyudh on Friday.

The Singapore dollar fell against the US dollar, in part because of weaker than expected export growth. And Indonesia's rupiah dropped, partly because of the nearby markets, and partly because of Mahathir's reported threat.

Even in the Philippines, where President Fidel Ramos had just reassured his people that he had dropped plans to modify the constitution in search of a second term in office, the peso and stock market first surged, then tempered their gains.

Traders quickly blamed the many questions that still remain about the nation's economic fundamentals.

In other words, even if Rubin was correct in saying the region is learning its lesson, short-term problems are by no means over. Southeast Asia's financial stability, and its impact on the world's emerging global markets, have become one focus as officials from 180 countries meet ahead of Tuesday's annual meetings of the World Bank and the International Monetary Fund.

[12] Clinton to commit US to paying back UN debt

On Sunday night, Clinton urged U.N. members at a private reception to support Annan's reforms. 'The U.N. is needed more than ever before,' he said. He met briefly with Presidents Leonid Kuchma of Ukraine, Robert Mugabe of Zimbabwe, Milan Kucan of Slovenia and Fabian Alarcony of Ecuador.

By year's end, Congress is expected to authorise about $900 million for the United Nations, provided the organisation does not expand beyond current levels and agrees to put in a separate fund an additional $400 million that the United Nations claims it is owed but the United States has contested.

U.S. officials say more than half of the contested arrears are for peacekeeping activities, and make up less than 7% of what the United States contributed to U.N.-assessed peacekeeping throughout the 1990s.

Clinton committed in February to paying the overdue monies, and Secretary of State Madeleine Albright said last week that agreement was near on 'a grand bargain' that would limit the U.S. contribution for U.N. peacekeeping operations to 25% and the U.S. share of the U.N. budget to 20%..

The deal would reduce U.N. dependence on the United States and more evenly distribute the financial burden among prosperous nations.

[13] Securities Exchange Commission launches drive to combat fraud in small- company stocks

Mr. Levitt is expected to outline proposed rule changes as well as stepped- up enforcement and investor-education initiatives in Senate testimony. A state regulator and a National Association of Securities Dealers' senior enforcement official will also discuss new fraud-fighting efforts.

'The subcommittee has information that penny stock fraud is roaring back,' said Senator Susan Collins, chairman of the Senate Permanent Subcommittee on Investigations. 'We intend to fully investigate this new wave of fraud, as well as the regulatory response to it, to determine whether more must be done to protect the investing public.'

Mr. Levitt, recognizing that civil fines and sanctions are not a deterrent to chronic violators, is expected to tell the panel that he will direct his enforcement division to assist the Department of Justice and state attorneys general in bringing more criminal stock fraud cases.

The SEC plans to work with the NASD and stock exchanges to find ways to put bad brokers and firms out of business for good. The agency also plans to develop a better system for letting investors know if a broker has been sanctioned.

State regulators estimate that penny stock abuses cost investors at least $6 billion a year, triple the amount during the 1980s. Although new rules curbed stock fraud in the early 1990s, unscrupulous stock promoters and brokerages are now exploiting loopholes.

[14] MITI to speed up deregulation to spur Japanese economy

Speaking at a regular press conference, MITI vice minister Osamu Watanabe said the statements made by the Group of Seven industrialised nations meeting over the weekend 'appropriately indicated each country's own economic situation.' On Japan, the G-7 statement said that the major challenge is to achieve the objective of strong, domestic demand-led growth.

Although Watanabe declined to comment whether Japan's trade surplus will expand or decline from now, he said: 'The U.S. will continue to have concerns (about Japan's surplus), and we will also closely monitor the trend.' In order to boost domestic demand and decrease the country's dependence on exports for its growth, Watanabe said the government needs to accelerate economic and financial structural reforms. But he didn't give any timetable for such reform plans as discussions have just begun at the ministerial level.

Separately, Japan's index of leading indicators of the economy in July stood at 22.2, down from a revised 40.9 in June, the Economic Planning Agency announced. The figures were exactly in line with forecasts; economists surveyed by Nikkei/Dow Jones had forecast on average that the July leading indicators index would be 22.2, while the coincident index would be 90.0. An EPA official told reporters that July's leading indicator index was below the so-called boom-or-bust threshold of 50.0 partly because of the lingering negative effects of the April 1 nation-wide consumption tax rise on the economy.

Leading indicators such as new employment data were indirectly hurt by the sluggishness in private residential investment, which also weighed on the index as a whole, the official said. However, the official said that the weak leading index was due partly to month-to-month volatility in individual indicators. He said the agency maintains the view that the economy is in a mild recovery trend.

[15] Corporate and Economic Briefs

Electro Rent signed a definitive agreement to acquire the computer and test and measurement equipment rental businesses of GE Capital Technology Management Services, a division of GE Capital Services, for $320 million in cash. In a press release, Electro Rent said the acquisition, which is expected to close by October 31, is subject to certain closing conditions.

Granada Group said it sold its Granada Computer Services business to a management buyout team for £89 million in cash. The media and hotels group will also receive an intercompany dividend of £8 million from Granada Computer as part of the deal. The disposal was widely anticipated as Granada continues with its strategy of selling off non-core assets to concentrate on media, hotels and catering. Granada said the disposal will be earnings-enhancing.

UK property group Chelsfield reported a significant rise in its half year earnings, reflecting a larger equity base and increased contribution from associates. Pretax profit for the period rose to £10.0 million ($16.1 million) from £6.0 million, with an increased dividend of 1.3 pence, up from 1.2 pence in the previous year. Earnings per share increased to 3.3 pence from 3.0 pence. Elliott Bernerd, chairman, said: 'Momentum is being maintained. Our investment at Merry Hill is looking increasingly reversionary and retail income underpins the group's rental base.

Denmark's August consumer price index rose 0.4% from the previous month and was up 2.4% from August of last year, according to figures released by Danmarks Statistik, the Danish national statistics agency. The figures were in line with market expectations.

The Czech merchandise trade deficit widened by 8.8 billion koruna in August from July, compared with a month-on-month increase of 13.7 billion koruna increase in July, the Czech Statistical Office reported. In January through August, the trade deficit was 98.3 billion koruna, compared with a foreign trade deficit of 97.6 billion koruna in the same period of 1996, the CSU said. Total imports in January through August were valued at 537.1 billion koruna, up 10.5% from the same period of 1996.

[16] IMF Update

European central banks will guide markets carefully as short-term interest rates converge in the run-up to European monetary union, and the Bundesbank itself is on stand-by for a rate rise, according to a Bundesbank board member. Edgar Meister said that European short-term rates could start to converge even before the line-up for a single currency was decided next year and said this process would be driven primarily by the region's central banks. Meister, in Hong Kong for the World Bank/IMF annual meeting, said: 'This can already start to take place. There can be some small steps even in advance of the decision next year.' But the Bundesbank itself was still in a waiting position, watching data to assess the need for an interest rate rise. 'If there is a need for an immediate rate rise the Bundesbank is ready to act,' he said. 'We are not on autopilot. We are watching developments closely.'

The decision this weekend to hike the International Monetary Fund's quotas by 45% is important because further increases aren't likely for many years, according to IMF treasurer David Williams. 'The outcome has been a very importnat bolstering of the fund's capital. It is one that will have to suffice well into the first part of the 21st century. And therefore it was important,' said Williams. The quota boost gives the fund extra capital, and should allow it to take on a larger role in international bailouts such as those for Mexico and Thailand. The quota issue was controversial because it also involved a reshuffle in the percentage share of individual members. The size of an individual state's quota determines its voting power at the fund. After the increase, Japan will hold the biggest share after the US, the fund official said. 'This has reduced a considerable number of anomalies in the quota structure,' Williams said. Currently, Japan shares the No. 2 spot with Germany, which will now hold the third largest voting power, according to Williams. Japan's quota will rise to 6.21% and Germany's to 6.11%, both up from 5.55%.

The joint panel of the International Monetary Fund and the World Bank agreed to intensify their battle against corruption by taking the practice 'explicitly' into account in providing loans to developing countries. 'Ministers agreed that corruption and weak governance undermine macroeconomic stability, private-sector activity and sustainable development objectives, and may erode international support for development cooperation,' the joint Development Committee said in a communique issued at its semiannual meeting in Hong Kong.

The joint Development Committee called for implementing a capital increase at the cash-strapped Multilateral Investment Guarantee Agency by the committee's next meeting in April. MIGA, a World Bank affiliate created to promote direct foreign investment in developing countries by protecting investors from noncommercial risks, plans to increase its capital by $1 billion to about $2 billion. The $1 billion capital increase will consist of a $150 million dollar grant from the World Bank and a total of $850 million from existing subscribers to MIGA. The joint committee welcomed an action program drawn up by the World Bank and its sister lending institutions for promoting private-sector involvement in projects in developing countries to improve their economic infrastructure, such as ports and roads.

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

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