European Business News (EBN), 97-10-03

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CONTENTS

[01] Barclays to sell major part of BZW, admitting defeat in quest to be global investment banker

[02] Worms rejects Pinault's $4.88 billion takeover bid

[03] Suntory, Pepsi form beverage alliance in Japan

[04] US creates new jobs at modest pace in September

[05] France, Italy adopt joint declaration to fight unemployment after bilateral summit

[06] Havas profit more than doubles to $184 million in the first-half

[07] Shares in British Biotech hit hard after firm halts anti-inflammatory drug research

[08] Yeltsin hints at move to disband parliament

[09] MCI officials seek response to WorldCom bid

[10] Lufthansa offers a German first: an executive stock plan

[11] Redland is being restructured in attempt to change firms fortunes

[12] UK September purchasing managers index fell to 56.3

[13] Sodexho CEO forecasts strong results in '98

[14] Japan's Prime Minister says pace of economic recovery still weak

[15] Corporate and Economic Briefs

[01] Barclays to sell major part of BZW, admitting defeat in quest to be global investment banker

Barclays decided to sell because the cost of building BZW to compete globally had grown too high.

'It was a case of looking at developments in the industry and realizing the increasing economies of scale,' Taylor said. 'It comes to a point that it's not just about major investment in people and systems.'

The decision followed a review by Bill Harrison, who became BZW chief executive a year ago and departed Friday, saying his work was complete.

It also comes as National Westminster Bank PLC (NW) is undertaking a strategic review of its Natwest Markets investment bank and has begun selling pieces.

Taylor denied any shift in strategy. 'When we've said we're not selling BZW, we've meant it. BZW is not a single block business and our commitment to those units we're keeping is still very strong.'

But he said the new BZW will concentrate on its credit, interest rate, currency and commodity market operations, its structured finance and private equity services and asset management.

'These operations are more closely aligned with the group's services to medium and large business,' he said.

Analysts think the sale will allow the bank to redeploy capital to its more profitable banking business.

'It's good for both the medium and long term outlook for the group,' said a banking analyst at Charterhouse Tilney Securities. 'It will allow Barclays to focus more on the retail banking side.'

As for potential bidders, talk centered on ABN-Amro Holdings, ING Barings, Commerzbank and First Boston. None were commenting, but analysts thought it likely they would take the opportunity to look at BZW's books.

'Both Commerzbank and ING strike me as plausible,' said Salomon's Leonard. 'ING's great strengths is in emerging markets and they're not a big player on the continent. For Commerzbank, they're already quite a significant force in Germany but have no U.K. presence. Either buyer would end up with a bigger organization than BZW was.'

There was widespread skepticism in Switzerland that CSFB could stomach such a bold acquisition so soon after this summer's purchase of Winterthur Swiss Insurance and a prolonged restructuring.

'It could be a bit much for the management,' said Claudia Von Tuerk, banking analyst at Pictet & Cie in Geneva. But added she believes CSFB will definitely 'have a look' at the units. She noted that at an analyst presentation Wednesday, CSFB had said it wanted to grow its equity business, particularly in Europe - although it suggested it wanted to do this through internal growth.

Taylor said Barclays hasn't held any talks yet. He also said BZW still needs to assemble financial details on the units - and give potential buyers time to make clear exactly what infrastructure and back-office functions they want. That left timing for the sale up in the air.

For the half-year to June, the entire BZW business reported total income of £692 million ($1.1 billion) and operating profit of £124 million. Out of total group profit of £1.27 billion for Barclays, BZW's profit represented 9.8%. The units being sold contributed £200 million to revenue, Barclays said.

[02] Worms rejects Pinault's $4.88 billion takeover bid

The French insurance holding company also posted a 55% jump in first-half net profit and said it expects to show significantly better earnings for the full year compared will all of 1996.

The company's board said the bid from Societe Artemis, a unit of the group Pinault doesn't meet 'the interests of Worms & Cie and its shareholders'. The board said the offer is inadequate and won't boost Worms' business.

Worms said net profit climbed to 1.18 billion francs in the six months to June 30 thanks to strong showings from its insurance, financial services and industrial investments.

The company said expects a 'significantly better' full-year performance over last year's as interim earnings exceeded the board's expectations.

[03] Suntory, Pepsi form beverage alliance in Japan

Suntory, one of Japan's biggest beverage company, will obtain the franchise to sell Pepsico products in Japan, with a Suntory unit taking over the business of Pepsico's Japanese unit next January.

Suntory said it aims to use the tie-up to help it expand its cold beverage business by 30% in the fiscal year through March 1999. The agreement is in keeping with PepsiCo's strategy to rebuild its badly bruised overseas beverage operations by teaming up with well-capitalized corporations and would be a big boost for Pepsi in a country where it has lagged behind Coca- Cola by a wide margin.

For the past few years, Pepsi adopted a go-for-broke strategy in many international markets, sometimes teaming up with franchisees who didn't have the resources or experience to do battle with Coke. In some other cases, the company decided to go it alone, using its vast company-owned bottling operations to distribute products, investing huge sums of money to build a distribution infrastructure.

In an interview earlier this year, Craig Weatherup, Pepsi's global beverage chief, said the company would largely abandon that model and was in discussions with companies that have the financial wherewithal and experience to market Pepsi products effectively. At the time, he confirmed Pepsi was in talks with some of its domestic bottlers to take over international franchises.

As such, Suntory would be a logical partner for Pepsi, analysts said. The Japanese company is already one of the largest bottlers of Pepsi products in the U.S., knows Pepsi well and is a sizable player in both the alcoholic and soft-drink industries in Japan.

Currently, Pepsi's products are distributed in Japan through a combination of company-owned bottling operations and independent franchisees. Under the agreement, Suntory will become Pepsi's premier franchisee in Japan, taking over Pepsi's company-owned operations there as well as overseeing the independent network, people familiar with the situation said.

Analysts contacted last night praised the move. 'This means Pepsi will get a lot more access to the marketplace,' said Jennifer Solomon, an analyst at Salomon Brothers who just returned from a trip to Japan. About 40% of soft drinks sold in Japan are distributed via vending machines, according to Ms. Solomon, and Suntory's vast retail distribution network will be a major asset for Pepsi.

Despite an agreement with a strong bottling partner, Pepsi probably will face a tough task in capturing market share. Coke derives at least 15% of its profit from Japan and dominates the market there.

Pepsi has gained some momentum in recent months in Japan, thanks to some snappy adverstising. That said, in the soft-drink business, 'you're only as good as your bottler,' said Emanuel Goldman, an analyst at PaineWebber, because soft-drink sales depend heavily on strong distribution. To that end, Mr. Goldman referred to the Suntory alliance as a 'major upgrade.'

'This is going to be the first of many deals where Pepsi strengthens its international beverage business by teaming up with powerful local partners who understand the dynamics of the total soft-drink category,' said Andrew Conway, an analyst at Morgan Stanley, Dean Witter, Discover.

[04] US creates new jobs at modest pace in September

Though growing with less momentum than earlier this year, the labour market still favoured job-seekers, according to economists. And, they said, the slight cooling could be seen as a welcome development because it reduces the need for an inflation-dampening dose of higher interest rates from the Federal Reserve.

Bond prices immediately shot higher after the report was released, sending the yield on the 30-year Treasury bond to a 20-month low of 6.18%, down from 6.29% late yesterday. Yields move in the opposite direction of bond prices.

The seasonally adjusted unemployment rate last month matched August's rate and was just a shade above the 4.8% rate in July, lowest since 1973, the Labor Department said today.

Employers added 215,000 jobs to their payrolls in September, up from a paltry 40,000 in August, the fewest in 11 months.

[05] France, Italy adopt joint declaration to fight unemployment after bilateral summit

An Italian spokesman said the declaration, adopted as leaders of both sides held a regular summit meeting here, raised the idea of cutting work time as a way of creating jobs, an idea dear to France's left-wing government.

The declaration was put together by ministers on the sidelines of the summit, which was attended by French President Jacques Chirac, French Prime Minister Lionel Jospin and Italian Prime Minister Romano Prodi.

Lionel Jospin said that France and Italy agreed on the need for not only a stronger 'ecofin' but for an 'informal mechanism' for economic co- ordination between the countries taking part in EMU. The ecofin is a formal body made up of finance ministers from all European Union countries,

Italy government sources stressed that Italy still wants a strengthening of the ecofin, but also wants the 'in' countries to co-ordinate their economies to ensure stability. Previously, Italy had said it preferred a stronger ecofin to the creation of an informal 'euro council.' The French have long pushed for this council, which was originally conceived as a counterweight to the European Central Bank.

Most EU countries agree that there is a need for economic co-ordination between the European single currency countries, but, like Germany in particular, have held back from full support.

Jacques Chirac said during a press conference after meeting with Italian Prime Minister Romano Prodi that both France and Italy are committed to taking part in EMU from the Jan. 1, 1999, start date.

'The euro is soon here,' Chirac said. 'Italy and France have the will and the dedication to be there in 1999.'

[06] Havas profit more than doubles to $184 million in the first-half

Havas' results received a big boost from its share of earnings from affiliates, including French television company Canal Plus, Havas Advertising and companies in Belgium's Groupe Bruxelles Lambert fold.

Income from those affiliates rose to 660 million francs from 217 million francs, adding to a 21% increase in operating income to 536 million francs. Revenue increased 5.1% to 25.0 billion francs.

As reported, Havas has agreed to swap its 40% stake in media holding company CLMM, whose majority shareholder is GBL, for a direct 17.54% share in its unit Audiofina.

Havas said in a statement its good operating performance stemmed from growth in its information division, local media operations consisting of outdoor advertising and freesheets, and advertising on German television.

Havas sees steady full-year earnings growth, 'despite continued heavy investment in the audiovisual sector,' as its press, publishing and local media operations continue to enjoy market growth.

[07] Shares in British Biotech hit hard after firm halts anti-inflammatory drug research

At about 0830 GMT , the company's shares were down 12 pence, or 8%, to 137.5 pence. The shares have traded in a range between 125 pence to 137.5 pence.

An analyst at a U.K. brokerage house said the drug failure isn't that significant in itself, but has fuelled concerns about the company's other products and the sector in general.

'It's very much a sentiment thing,' he said. 'I think it's a case of 'oh no, not another one.''

British Biotech is just the latest in a growing list of biotechnology companies to suffer setbacks in recent months. Others include Celltech, Biocompatibles and earlier this week Stanford Rook. BB-2983, which was licensed to Glaxo Wellcome, was being tested as a treatment for arthritis and inflammatory bowel disease.

In its statement, British Biotech stressed that the drug failure hasn't in any way affected development of its anti-cancer drug Marimastat, which comes from the same family of drugs as BB-2983 but has already passed toxicity tests.

A spokeswoman for Glaxo told Dow Jones the drug 'could have been one of several compounds we could have potentially followed through with them (British Biotech).'

'We're always looking at opportunities but this one obviously isn't going to work,' she said. 'That doesn't mean we wouldn't collaborate with them again in the future. We judge things on a case by case basis,' she added.

One analyst at a U.S. brokerage said the decision to halt development of BB- 2983 won't affect her valuation of British Biotech shares. But she said it raises concerns about at least one other similar drug compound that is currently being tested by the company, multiple sclerosis drug BB-3644.

'We won't know until Phase I toxicity studies are completed in early 1998, but we'll have to keep a close eye on it,' she said.

[08] Yeltsin hints at move to disband parliament

The president spoke on the fourth anniversary of a violent clash between his administration and hard-line lawmakers. In September 1993, Yeltsin moved to disband the old Soviet-era parliament, when 200 people were killed in clashes following resistance by parliament's supporters on Oct. 3-4, 1993,

'The confrontation between the lawmakers and the executive power then led to bloodshed,' Yeltsin reminded legislators.

In today's speech Yeltsin criticised the State Duma, the lower house of parliament, for its position on land ownership. Yeltsin wants to expand the private property market and he recently vetoed the Land Code, a proposed law that would limit private ownership of land and forbid the sale of farm land. But the Duma, which is dominated by communists and hard-liners, overrode his veto.

He also lashed out at the Duma for its rejection of the government's welfare reform and its criticism of the Kremlin's foreign policies and the draft 1998 budget.

Budget hearings are scheduled to begin next week. But Communists and their allies have already said they wouldn't accept the austere budget plan, which sharply curtails costly subsidies to the regions and industries.

Yeltsin did not specify what action he planned to take. But Friday's remarks, and other recent comments, have suggested he might move to disband parliament.

Russia's constitution gives president the power to disband the Duma if lawmakers vote no confidence in the Cabinet. Such a vote can be initiated by Prime Minister Viktor Chernomyrdin, Yeltsin's loyal ally.

[09] MCI officials seek response to WorldCom bid

WorldCom's takeover offer clearly startled MCI, which had been close to completing its acquisition by British Telecommunications . The WorldCom bid carries some immediate advantages: It would pay MCI shareholders $9 billion more than BT's accord, produce billions in cost savings that can't be had from a BT deal, and offer MCI access to local networks and Internet facilities world-wide that MCI otherwise would have to build from scratch.

Moreover, even if MCI decides to try to stick with BT, it would have to persuade its shareholders to approve a lower price from an overseas partner that, just weeks ago, drastically reduced what it is willing to pay for MCI.

People close to both companies speculated that WorldCom's president and chief executive officer, Bernard Ebbers, may meet with MCI Chairman Bert C. Roberts Jr. this weekend to discuss WorldCom's bid. But WorldCom Senior Vice President Josh Howell said, 'There is no meeting scheduled at this time.'

MCI kept a tight lid on the deliberations at its Washington, D.C., headquarters, as WorldCom's Mr. Ebbers and his advisers from Salomon Brothers met in Boston with institutional investors and analysts. Mr. Ebbers tried to convince them of the financial merits of the offer, and WorldCom's stock performance Thursday indicated he didn't meet much resistance. WorldCom's shares rose 10%, or $3.50, to $37.875 in Nasdaq Stock Market trading. Meanwhile, MCI rose $1.375 to $36.625.

MCI can't afford to pussyfoot. Fighting off WorldCom could lead to a protracted legal and shareholder battle just when MCI and its would-be owners at BT can least afford strategic delays.

Competition is raging, rival teams of telecommunications carriers are forming, and the giant Bell companies are about to enter all markets. Even better for MCI and others: AT&T is in turmoil, giving them a window of opportunity to wrest more market share from the market leader.

MCI may end up searching for a way to combine with WorldCom while keeping BT as a partner, some observers say.

The BT merger pact requires MCI to inform BT whether it plans to terminate their deal and recommend the WorldCom offer to MCI shareholders. WorldCom's chief, Mr. Ebbers, has said he would like BT to stay with a WorldCom-MCI combination, and people close to MCI believe that MCI brass would want that kind of an arrangement as well.

BT Chief Executive Sir Peter Bonfield is said to be considering whether to seek common ground with WorldCom.

BT could hold on to a 10% stake in a combined WorldCom-MCI, which would give the United Kingdom phone giant some access to the lucrative U.S. market and aid its expansion into foreign markets outside the U.K.

Otherwise, BT is in a jam. It can't easily raise its bid for MCI because it has already agreed to its shareholders' demands that it cut the price for MCI by about 25% -- a move that opened the way for the WorldCom offer. BT and MCI already operate an international venture called Concert Communications, which provides voice, data and video transmission services to corporations and has more than $1.5 billion in revenue. BT could be the new WorldCom-MCI's major foreign partner and investor.

John J. Keller, The Wall Street Journal, New York

[10] Lufthansa offers a German first: an executive stock plan

The system is initially limited to the airline's top 200 managers, but Chairman Juergen Weber told a small group of journalists in London that he hopes to expand it in the future to other employees in the Lufthansa system.

The stock-option system, unveiled in advance of the Oct. 13 offering of the German government's remaining 37.5% stake in Lufthansa, underscores the carrier's efforts to move away from its bureaucratic, state-controlled past.

Weber has long pushed for the carrier's full privatisation, believing it is essential to create the nimbleness required for today's fiercely competitive global airline industry. By tying bonuses to the share price, he also is trying to convince the airline's managers of the importance of stock market perceptions and expectations, which have never ranked high in German corporate culture.

'As we have only recently evolved out of the public sector, there has not been a high degree of awareness here that we're judged by financial markets, ' a Lufthansa spokesman said. 'This is designed to make managers look much more closely at the value of the stock price as it relates to our performance.'

Under the system, the Lufthansa share price will be compared with a 'basket' of competitors' shares - comprised 50% by British Airways, 30% by KLM and 20% by Swissair. The managers will buy shares, from an investment of 40,000 marks ($22,540) to a maximum 80,000 marks ($45,080). On the Frankfurt exchange, Lufthansa rose to 36.90 marks, up 1.15 marks, or 3.2%.

For every percentage point Lufthansa shares outperform the basket, up to 10%, managers receive a bonus of one mark for a share; that rises to two marks a share for every percentage-point increase between 10% and 20%, three marks a share between 20% and 30%, and a maximum of four marks a share up to a 40% differential.

So far, about two-thirds of the 200 eligible managers have expressed an interest in joining; the plan, designed by Dresdner Kleinwort Benson, is expected to be formally initiated in the coming weeks.

The airline said the bonus system will run for three years to discourage quick-fix management. 'We want continued improvement,' the spokesman said. 'We don't want people to collect their bonuses and then go back to the old ways.'

Other German companies such as Daimler-Benz AG and Deutsche Bank AG have initiated management bonus plans tied to the company's stock price, but the systems have sometimes come under fire - and been subject to lawsuits by minority shareholders - for merely rewarding executives for the recent general upturn in the stock market. However, Lufthansa said that its system is unique in Germany in tying bonuses to the share price relative to that of competitors, thus creating a better benchmark for performance.

[11] Redland is being restructured in attempt to change firms fortunes

The company-wide review has been going on for a few weeks. Agnew confirmed it after telling institutional investors the company might be a takeover target.

Redland hasn't received any bids yet, nor has it held any talks with potential bidders, Agnew said.

While the chairman is said to share institutional investors' unhappiness with Chief Executive Robert Napier, he said it would be 'unhelpful' to single out anyone to blame for Redland's falling profitability and ever- falling share price.

'Some investors have made a crude attack on Robert Napier,' Agnew said. 'We are undertaking a strategic review, and I can make no promises about the timetable. Redland has made too many promises to the (financial district) in past which it hasn't been able to deliver on.'

Some analysts reckon Napier shoulders the brunt of the blame for a nearly 50% drop in company's share in the past 12 months. They say it's only a matter of weeks before he's ousted by his own board.

George Matlock, Dow Jones Newswires, London

[12] UK September purchasing managers index fell to 56.3

The seasonally-adjusted index fell for the fourth month running, but is still well above the 50.0 cut-off point.

Any reading above 50 indicates a generally expanding sector.

'The weaker growth of business activity reflected a deceleration in the rate of incoming new business,' said the CIPS.

However, the amount of business outstanding could grow again, as demand continued to grow faster than service firms could react by expanding capacity.

Most service sector companies expect to be busier over the next year, according to the CIPS.

A total of 62% of firms expected their workload to rise, but that was down from 79% last October, when optimism was higher.

The index is based on a weighted average of individual survey indexes including new and outstanding business, input prices, prices charged and employment.

[13] Sodexho CEO forecasts strong results in '98

Bellon said net profit should rise 20% in fiscal 1998. The group's latest published results for the half-year to Feb. 28, showed a 26% advance in net profit to 269 million francs ($45 million) from the year before. 'We estimate that earnings per share for Sodexho will rise on average by more than 20% a year' in the 1999 to 2001 financial years, Bellon said at a news conference.

Bellon was speaking to elaborate on the implications of the recently announced merger of Sodexho's North American food service operations with those of Marriott International Inc. Sodexho plans to raise 2 billion francs which will be invested in Sodexho Marriott, in which the French company will have a 49% stake.

[14] Japan's Prime Minister says pace of economic recovery still weak

'I take the 2.9% drop (from the prior quarter) in April-June gross domestic product figures very seriously,' Hashimoto said, speaking in a speech to editors of Kyodo News Service.

He added that the affects of Japan's consumption tax hike in April and the discontinuation of special income tax hikes are lasting longer than expected.

Hashimoto noted that the Bank of Japan's quarterly survey of business sentiment, commonly known as the 'tankan,' which was released Wednesday, indicated that business sentiment is deteriorating. He added that recent data on retail and automobile sales have also been poor.

'Confidence in the future of the economy is weak,' the prime minister said.

Hashimoto said that people lack confidence in future growth because structural problems are emerging in Japan's economy. He said that it is therefore important to carry out economic and structural reforms in order to make the economic recovery more firm.

The prime minister said it is necessary to consider steps such as lowering corporate taxes while widening the tax base, and measures to boost liquidity in Japan's moribund real estate market. He said real estate liquidity could be improved by reforming certain land taxes.

[15] Corporate and Economic Briefs

Heineken said it has acquired a 90% stake in Achimota Brewing Company in the African nation of Ghana. Heineken, which bought the stake from the Ghanese Social Security National Investment Trust, didn't provide any financial details. The Acimota brewery is the fourth largest brewery in Ghana. Heineken already has a 50% stake in Kumasi, the country's largest brewery, and a 15% share in Accra Brewery.

Italian Prime Minister Romano Prodi said a joint Italian-French project for the reduction of the work week to 35 hours is part of ongoing talks in France. Prodi's comments came at the fringe of the Italian-French summit in Chambery, France. Italian Labour Minister Tiziano Treu and his French counterpart Martin Aubry have prepared the document, Prodi said.

French producer prices were steady on the month in August, and rose 0.1% in July from June, French national statistics institute INSEE said. At the end of the two-month period, prices were up 0.4% from a year ago, the agency said. French producer prices rose a revised 1.2% in June from May after previously being reported as having risen 1%.

French cosmetics company Clarins said its net profit fell 54% to 66.3 million ($11.2 million) francs in the first half of 1997 from 144.6 million francs in the first half of 1996 because of lower sales in France, the US and Asia, and investment costs. Clarins said its first-half operating profit fell 2.4% to 235.8 million francs from 241.6 million francs a year earlier. The company forecast its operating profit would fall by nearly 15% in the second half of 1997.

The European Union Commission said it will open a detailed investigation into the proposed acquisition of Corange by Hoffmann-La Roche. The main concerns of the Commission are that Hoffmann-La Roche will hold a high market share in vitro diagnostics, because Corange controls Boehringer Mannheim Group and De Puy, two companies active in the field. The merger will lead to added market shares of more than 40% in clinical chemistry in Austria, Germany, Italy, Portugal, and all Scandinavian countries.

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