European Business News (EBN), 97-10-13

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

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

Page last updated Mon, October 13 7:15 PM CET

CONTENTS

[01] European markets are pushed up by unexpected merger fever

[02] Merged B.A.T, Zurich Insurance could face uphill struggle

[03] Reed Elsevier, Kluwer merger meets analysts' approval

[04] Redland rejects hostile $2.68 billion bid from Lafarge

[05] Generali launches takeover bid for AGF

[06] Nordbanken shares sink while Merita gains on plans to merge into Nordic region's biggest bank

[07] LVMH, Guinness resolve GrandMet dispute

[08] German government floats remaining Lufthansa shares at $19 each

[09] UK Chancellor says Britain unlikely to join first wave of EMU

[10] ICG Comm agrees to acquire Netcom On-Line Comm in $285 million stock swap

[11] Italy's caretakers willing to compromise with Communists

[12] UK September producer prices rise 1.4%

[13] Norway's departing government presents third consecutive budget calling for a surging surplus

[14] French September consumer prices rise 1.3%

[15] Japan's August trade surplus widens

[16] Corporate and Economic Briefs

[01] European markets are pushed up by unexpected merger fever

Zurich Group and B.A.T Industries led the charge when they announced on Sunday that they were in talks for the Swiss insurance leader to take over the British tobacco giant's financial services interests and create an entity worth some £22 billion ($35.7 billion).

Britain's Reed Elsevier and Wolters Kluwer of the Netherlands announced a £12.5 billion ($20.3 billion) merger to create the world's biggest professional and science publisher.

Sweden's third largest bank Nordbanken and Merita, Finland's largest bank, said they proposed a $10.6 billion merger to establish the Nordic region's largest bank with an aggressive eye on further acquisitions.

Generali bid 300 francs a share for AGF with the aim of creating a pan- European insurance giant with hefty market share across Spain, Italy and France and global premiums of over 200 billion French francs ($34 billion).

French cement maker Lafarge announced a 1.7 billion pound ($2.8 billion) hostile bid for the British building materials group Redland .

Lafarge, which said it had been eyeing Redland for over a year, would have to raise about 18 billion francs of debt to pay for the Redland purchase. It saw its stock jump 2.33% to 443 francs.

London share prices had been expected to come under further pressure after dropping 2% last week on a round of European interest hikes and sobering comments on the health of the U.S. economy from Federal Reserve Board Chairman Alan Greenspan.

But the FTSE-100 soared over 1.3% in early trading on the deluge of corporate action.

French stocks jumped 1.1%, the Milan bourse leapt 1.55% and the German DAX rose nearly 1%.

'With this type of activity around there is only one way the market is going to go...' said one trader.

In other merger-related activity, shares in Guinness and Grand Metropolitan rose after the two settled a dispute with LVMH of France, allowing the tie- up of the two British firms to go ahead.

LVMH will have a 10% stake in the merged group as part of the deal.

Analysts welcomed the B.A.T deal with Zurich as a way for the British conglomerate to end its long search for a way to unravel its financial operations from its lower-rated tobacco interests.

The deal between would create a global life and general insurance business with particular strength in the U.S. market through American insurer Farmers.

B.A.T. shares were up over 10% at 611 pence in morning trade while Zurich stock rose 6.8% at 640 at the bourse open.

The Merita-Nordbanken merger was expected to generate savings of 970 million crowns a year for the next three years, including the loss of about 600 jobs at each bank. Restructuring costs were estimated at 850 million crowns.

'The merger is creating a solid foundation for continued expansion,' the banks said in a joint statement. 'Merita is inviting other financial companies in the Nordic and Baltic region to participate in this growth.'

Market analysts said the Reed-Wolters entity would have almost a monopolistic position in the European market for legal publishing.

The European Commission had no immediate comment on Monday.

[02] Merged B.A.T, Zurich Insurance could face uphill struggle

The U.K. tobacco and financial-services group and the Swiss insurer confirmed late Sunday that talks on a merger continue and are at an 'advanced stage.' Analysts say the combined concern would boast a market capitalisation estimated at around £21 billion.

If a merger went through, it would lump Zurich Group's Chicago-based Kemper and New York-based Scudder, Stevens & Clark asset-management units with B.A.T's financial-services subsidiaries, Farmers Insurance Group of the U.S. and British insurers Eagle Star and Allied Dunbar.

For Zurich Group, a merger would bring an instant and sizeable foothold in the U.K. life- and non-life-insurance markets. However, a combination would mean greater benefit for its U.S. business, according to onlookers.

'Zurich will become a major player in the U.K. - Eagle Star is probably the sixth-largest non-life company in the U.K.,' said James Pearce, insurance analyst at investment bank Fox-Pitt Kelton. 'But the main opportunity here for Zurich is in the U.S. It really gives them a hike in distribution capability, although it's not clear yet how they'll achieve the cost savings.'

As for B.A.T., analysts say the company should consider itself lucky it found someone to buy the businesses.

'They've essentially had a big neon 'For Sale' sign up for a while,' one insurance analyst said. However, buyers haven't been lining up due to questions over the businesses' profitability, credibility and potential.

'In industry terms, B.A.T's financial-services arm is not good-quality,' said John Marr, insurance analyst at Charterhouse Tilney Securities in Liverpool. 'These businesses were bought years ago, when the insurance market was a different world, and the company has never attempted to rationalise the three businesses.'

B.A.T was close to entering a financial-services partnership last year with U.K. composite insurer Commercial Union, but talks broke down in August, reportedly over valuations and management structure. 'Commercial Union walked away from them,' Marr said. 'They're a very astute organisation.'

Of the three B.A.T financial units, U.S.-based property and casualty group Farmers Insurance is by far the best performer. With a sales force of more than 14,000 in 30 states, the group posted pretax profit of $336 million for the interim period, up 8% on the year, according to B.A.T.

Analyst Rene Locher of Union Bank of Switzerland said Zurich can reach critical mass in U.S. if it can combine Farmers and its distribution channels with Kemper and Scudder, Stevens.

Zurich paid $2 billion for Kemper in early 1996 and $1.67 billion for New York-based Scudder, Stevens earlier this year.

Plinio Zanetti, insurance analyst at Bank Leu, agreed, saying the combination makes 'strategic, long-term sense, especially in the U.S.'

On the flip side, U.K.-based general and life insurer Eagle Star is the black spot in the portfolio. The unit reported interim profit of £101 million, down 7.3% on the year, as it struggles to generate new income in the competitive auto-insurance market.

'I don't think Eagle Star is even writing profitable business right now,' one analyst said.

'Its performance is patchy at best,' Fox-Pitt Kelton's Pearce added.

And while Zurich might gain critical U.K. market share and double its market capitalisation via a merger with B.A.T, that doesn't translate into higher profit or cost savings, analysts argue.

'This deal is not being driven by cost savings, but more by global presence, ' said Michael Lindsay, insurance analyst at Lehman Brothers in London. 'It could even be earnings-dilutive for Zurich at the outset, and there may be short-term uncertainty attached to the share price.'

Analysts say the merger makes sense on paper, but they wonder what the outcome will look like a few years down the road.

'Zurich is a good-quality company,' said Charterhouse's Marr. 'I'm slightly taken aback that they would get involved with B.A.T. I would say they've got one hell of a job on their hands.'

Alison Turner, London, and Dennis Baker, Zurich, Dow Jones Newswires

[03] Reed Elsevier, Kluwer merger meets analysts' approval

'It's a strategic move aimed at the future,' said Reinier Westeneng, analyst with Stroeve Bank in Amsterdam, adding that the two will benefit most from cooperation in electronic publishing.

The companies caught market participants off guard with the announcement that they had agreed in principle to merge their activities. The combined concern will be the world's largest professional publishing and information group, with a strong presence in North America, Europe and the Asia-Pacific region.

The merger will bring about cost savings, projected at £50 million ($81 million) annually after 2000, but that's not the main point, Westeneng said. 'The savings are nice, but the main thing is that they can now together make the large investments needed for the change from print publishing to electronic publishing,' he argued.

Shares of all three companies concerned traded higher on the news.

Wolters Kluwer stockholders will receive 7.85 shares of the new company, to be called Elsevier Wolters Kluwer, for each of their shares.

After the merger is completed, probably in the first quarter of 1998, Reed will own 38.3% of the new group, while Elsevier and Wolters Kluwer will own 34.2% and 27.5%, respectively.

The combined company would have posted pro forma sales of 13.2 billion guilders, or $8.1 billion, in 1996. Its market capitalisation as of Friday would have stood at about 55.9 billion guilders, or $28.4 billion.

The companies said they're confident that taking into account revenue and cost-saving synergies, the merger's impact on earnings per share at each concern in 1998 would be 'broadly neutral' compared with forecast EPS absent the merger, and accretive after 1998.

While the companies were reluctant to speculate on future earnings, Wolters Kluwer reiterated that it still expects to reach its goal of an annual 15% increase in net profit in coming years.

Analysts refrained from estimating what benefits the merger might bring for the publishers. 'It can be very positive,' Stroeve Bank's Westeneng said. 'The boards of the companies have always been very driven when it came to shareholder value.'

He added that all three concerns would certainly see increased sales and results.

Heleen de Graaf, Dow Jones Newswires, Amsterdam

[04] Redland rejects hostile $2.68 billion bid from Lafarge

Redland said it was considering alternative ways of realising shareholder value, as analysts had predicted. Meanwhile investors should 'take no action' said Redland.

'The Board strongly advises shareholders to reject the offer which totally fails to recognise the value of Redland,' the company added.

But Lafarge chairman and chief executive Bertrand Collomb, called it 'an outstanding opportunity'.

The French cement group's chief said 'We may need to ask for an equity increase some time next year,' to fund the deal. That could total four to five billion francs in fresh equity.

Lafarge, in announcing its bid for the troubled U.K. building materials group, said Redland's outlook 'does not appear to be any brighter than the recent disappointing performance and, against this background, Lafarge believes strongly that its offer is in the interests of Redland's shareholders.'

Redland said that it is already in the process of considering a number of alternative methods of maximising shareholder value and will provide detailed advice to shareholders as soon as possible.' The 320 pence a share offer is at a premium of 24.3% to Redland's close on the London Stock Exchange Friday.

The French company said the acquisition would boost its turnover by 50% to 60 billion francs ($10.2 billion).

The planned purchase will bring roofing products into its portfolio and strengthen its position in North America and Europe, particularly in Germany, Lafarge said.

The Redland acquisition would make Lafarge the leading company in aggregates and roofing products, second in cement and concrete and among the top 10 in plaster, Lafarge said.

Lafarge's offer came in just 10 days after Redland chairman Rudolph Agnew warned that a takeover play was 'possible' because of the group's share price weakness in the wake of dismal underperformance and a poor trading outlook in the major German market.

Analysts described the Lafarge offer as 'a powerful opening shot', but even earlier on Redland's shares showed the market was hoping for more than the 320 pence per share which is on the table.

Williams de Broe analyst Simon Brown, said, 'I suspect they will put up a defence. But I'm surprised Lafarge is willing to pay that much. It represents an 85 pence premium over net asset value.'

'Lafarge is buying a whole heap of trouble,' said another analyst.

[05] Generali launches takeover bid for AGF

The Conseil des Marches Financiers said in a statement that shares in AGF will be suspended following the Generali offer.

The move represents an escalation of the takeover battle for France's insurance and industrial company Worms & Cie which started last month.

Only last week, the CMF gave its approval to an offer by AGF and Someal, a unit of Italy's Ifil group, for Worms. Their offer for Worms is an attempt to ward off the hostile takeover offer from businessman Francois Pinault through his holding company Artemis.

French newspaper Les Echos reported that Pinault had recruited Generali to boost his bid to grab control of Worms.

The CMF said Generali's offer for AGF's entire current issued share capital - 137 million shares - includes an offer to buy those shares the French insurance group planned to issue in its bid to win control of Worms' insurance arm Athena.

The CMF added that Generali will go through with its offer if can acquire 50.01% of AGF shares. The Italian group currently holds 0.5% of AGF's stock.

Generali, in a statement, said the AGF acquisition would give it an 11% share of the insurance market in France, 10% in Spain, 7% in Belgium, and 8% in Ireland.

Generali also said the value of the deal is worth up to 55 billion francs ($9.48 billion).

[06] Nordbanken shares sink while Merita gains on plans to merge into Nordic region's biggest bank

Shares of Nordbanken ended 5.5 lower at 274 crowns, that's down 2%, once a trade suspension was lifted, dragging the bank index back to end just 0.01% higher. Merita shares in Helsinki gained 2.90 markka to 28.10, a rise of over 10%. Since the merger between Swedish bank Skandinaviska Enskilda Banken and insurance company Trygg-Hansa little more than a week ago, Nordbanken's share price has risen more than 15%, elevated by rumours about a structural deal involving the bank and different potential partners. Before the Trygg-Hansa/S-E-Banken merger there was still some speculation about an arrangement with S-E-Banken.

Meanwhile shares of Merita are rising on the Helsinki Stock Exchange since trading was resumed at the same time as for Nordbanken. At around 1430 GMT Merita traded 3 markkaa higher at 28.20 markkaa.

'In the short-term it's the current shareholders of Merita who will see the most upside potential since they contribute 38% of the capital to the new company and will get a 40% holding,' noted Jan Volter, banking analyst with Swedish securities house Nordiska Fondkommission in Stockholm.

'The more the Merita share rises the more that ratio will even out though,' he said, suggesting that Merita's share price should at least top 30 markkaa on the back of this merger.

On the whole and against the background of the ongoing consolidation of the financial sector in the Nordic countries, the merger between Nordbanken and Merita into MeritaNordbanken, which will become one of the leading bank groups in the Nordic and Baltic regions, is regarded as good news by analysts.

'In the longer term the new company will be worth more than both Nordbanken's and Merita's shareholders paid though, so ideally you should buy both shares. But if you have to choose you will of course choose the cheapest way into the company and that is the Merita share,' Volter at Nordiska Fondkommission said.

The merger will generate expense and revenue synergies effects of 970 million kronor annually after three years, of which cost synergies are estimated at 630 million kronor per year as a result of a reduction in the number of employees by around 600, as well as through advantages of scale in the information technology area.

Meanwhile revenue synergies are seen at 340 million kronor per year.

'The synergy effects are relatively small in the short run,' said one analyst with a major Swedish bank, as the two banks' operations don't overlap each other as they would in a merger within one country.

'But in the long run there should be positive synergies with regard to Finland's planned entry to (economic and monetary union) EMU in 1999, potential expansion in the Baltic area, and cost savings on information technology,' he added.

While Finland is widely expected to be one of the countries joining EMU on Jan. 1, 1999, Sweden's government has proposed that Sweden won't join the single currency zone from its planned start.

'EMU will open the Nordic markets to foreign competitors, and compared with today when banks enjoy some protection through (national) regulations, with EMU these rules will be harmonised and thus one obstacle for foreign banks to enter the Nordic markets will be gone,' one bank sector analyst said.

Maria Aakerhielm and Annette Jonsson, Dow Jones Newswires, Stockholm

[07] LVMH, Guinness resolve GrandMet dispute

The resolution includes Guinness paying LVMH £250 million ($400 million) for business benefits.

The deal is conditional on the merger of GMG Brands taking effect, and enables LVMH and GMG Brands to work together to develop their premium brands.

The three will cooperate on distribution, which should lead to annual savings of £20 million for GMG and a similar figure for LVMH.

On completion of the merger, LVMH will terminate arbitration procedures currently underway against Guinness. LVMH Chairman Bernard Arnault will become a non-executive director of GMG and the ownership of drinks company Moet Hennessy will remain unchanged.

The French group, which has built up an 11% stake in GrandMet, has agreed not to sell any of its shares until the GMG deal is complete. The standstill agreements with Guinness will remain in place. It is expected that the merger will be completed in mid-January.

GrandMet and Guinness have denied the £250 million being paid to LVMH was a pay-off to get the agreement of the French luxury goods company to the UK groups' plans to merge.

Grand Met Chief Executive John McGrath said the payment was 'absolutely not' a payoff but reflected 'substantial benefits' to Grand Met from extending distribution agreements with LVMH to IDV brands. Grand Met spirits and wine unit IDV is excluded from Guinness' distribution deals with LVMH. Guinness Chairman Tony Greener said, 'This is the best deal that is available to our shareholders.'

[08] German government floats remaining Lufthansa shares at $19 each

The German government expects to raise almost 5 billion marks ($2.8 billion) by selling its remaining stake in the German flag carrier. The bidding for the share issue ended Friday, when Lufthansa shares closed at 33.80 marks, down 1.70 marks or 4.8%, in floor trading on the Frankfurt stock exchange.

Transport Minister Matthias Wissmann called the price 'extremely fair' and said it showed the government's desire to attract long-term investors.

He pointed to the 'enormous interest' in the sale, which was oversubscribed, as evidence that investors recognize Lufthansa's successes and have confidence in its future. 'The success of the placement is not least also a success for the federal government and its privatization policy,' he said.

However, analysts say demand for Lufthansa shares has come mainly from private investors, with institutional participants sidelined. Private investors get a discount of 1 mark per share.

Lufthansa shares have soared nearly 70% this year, but analysts say dazzling performance is unlikely to be sustained despite recent assertions by Lufthansa officials and the lead managers of the issue that the stock is around 40% undervalued.

'The company itself is in good shape, but there simply isn't much room for gains,' said Michael Klein, analyst at Delbrueck in Frankfurt. Lufthansa must ensure that a majority of the company remains in German hands to guarantee landing rights at other European airports as a German airline, he noted.

Retail buyers are being strongly encouraged to participate in the flotation because they're likely to be German and are known to hold their shares longer than institutional investors, analysts say.

In August, Lufthansa posted its best-ever pretax profit for a first half: Earnings more than tripled to 397 million marks ($227 million). The company also said it expects full-year net profit to be 'well above' last year's 558 million marks.

[09] UK Chancellor says Britain unlikely to join first wave of EMU

In an interview to be broadcast on BBC television news at 1200 GMT, Brown made it clear that his government's position on the issue hasn't changed since it came to power in May.

Questioned if the U.K. is technically ready for EMU, Brown said 'the government's position on this has not changed.'

'It s is very unlikely that we would join in the first wave. There are formidable obstacles,' he told the interviewer.

According to a transcript of the interview, the chancellor continued: 'The government's position has not changed from what we said at election time.'

Also, he added, 'I think everybody understands that for successful monetary union, there has got to be attention to the problems of unemployment.'

Brown's comments come after he presented a report to the European Union finance ministers meeting in Luxembourg showing that Britain could meet the debt and deficit criteria needed for joining EMU at its start in 1999.

Speculation that the new government might be prepared to take the pound in as early as that was encouraged by reports that Labour was becoming more friendly towards a single currency.

[10] ICG Comm agrees to acquire Netcom On-Line Comm in $285 million stock swap

If the closing ICG stock price drops below $22.125 a share but is greater than or equal to $19, the exchange ratio will convert to the fraction that occurs by dividing 19.0625 by the ICG closing stock price.

If the closing ICG stock price drops below $19 a share, the pricing structure would convert to a fixed exchange ratio of 1.0078 ICG common shares for each Netcom share.

ICG expects to close the transaction, which is subject to shareholder approval and regulatory conditions, in the first quarter 1998.

The transaction is structured as a tax-free merger between an ICG unit and Netcom. ICG said the combined company would have more than $420 million in quarterly annualized revenue on a pro forma basis.

Netcom On-Line provides Internet services through its TCP/IP-based digital network. Netcom shares closed Friday at 15 1/8, up 1 3/8, or 10%.

ICG Communications offers local, long distance and enhanced telephony and data services and has fiber-optic networks. ICG shares closed Friday at 26 1/4, down 5/8, or 2.3%.

[11] Italy's caretakers willing to compromise with Communists

Following a nearly two-hour meeting with President Oscar Luigi Scalfaro, the leaders of the Olive Tree alliance said they asked the president to reconfirm Prodi as premier.

'We think that we can and we must rebuild the parliamentary majority which emerged from the April 1996 elections,' said Mauro Paissan, leader of the Greens party.

He said the group will ask Fausto Bertinotti's Communist Refoundation party to approve the budget as proposed to parliament last week, in exchange for changes in other parts of their program, such as the introduction of a 35- hour work week.

Scalfaro has said he will decide by tomorrow whether to call early elections, ask Prodi to try to form another coalition or give the task to someone else.

Prodi quit on Thursday after the Communist Refoundation party refused to back a plan for $3 billion in budget cuts which the government deems vital if Italy is to enter the European Monetary Union.

Prodi's 17-month-long government had depended on the Communists to give it a majority in the Chamber of Deputies.

Yesterday, Bertinotti urged 'all sides to be willing to re-think their positions.'

[12] UK September producer prices rise 1.4%

September's annual rise in prices was slightly slower than the 1.5% reported for August, although the August rise from July was also 0.2%. In part this was because petroleum prices rose 4.8% in September 1996 from August 1996, while rising only 1.2% in September from August this year, an ONS official said.

Seasonally adjusted producer input prices rose 0.5% in September from August, compared with expectations in a Dow Jones survey that they would fall by 0.5%. Adjusted input prices were down 7.8% in September from a year earlier.

The ONS also said the adjusted core output price index - which excludes food, beverages, tobacco and petroleum - rose 0.1% in September from August, as forecast.

[13] Norway's departing government presents third consecutive budget calling for a surging surplus

While many other European countries are grappling with deficits and sluggish growth, Norway's government proposed a budget for next year with a skyrocketing surplus for the third straight year.

But market reaction was muted as analysts said the budget contained few surprises.

Indeed the Deutsche mark fetched 4.0025 Norwegian kroner late Monday, little changed from 4.0080 kroner late Friday.

Onlookers had already expected to see a massive surplus close to the hefty 73.4-billion-kroner surplus, equal to some 6.4% of GDP, that the outgoing Labour government presented Monday.

The government painted a rosy picture of the Norwegian economy, projecting 3.9% growth in gross domestic product this year and 4.6% in 1998, fuelled by private consumption, investment and rising exports.

Meanwhile, inflation is expected to remain in check at 2.5% this year and 2.25% next year, due to a fiscal tightening package and continued incomes- policy cooperation between labour unions and employers.

'At first glance, the budget seems pretty good,' said Marius Loemo, an analyst with Christiania Markets in Oslo. 'Inflation seems under control, and wage growth will be moderate.'

According to the government, new fiscal measures contained in the budget, such as an expansion of the base for wealth taxation, ending tax breaks for shipping companies, and higher duties on cigarettes and alcohol, will have a contractionary impact of about 0.75% of Norway's mainland GDP and prevent the economy from overheating.

'The tightening was within the expected range,' said Christiania's Loemo. However, Loemo and other analysts would have liked even more stringent fiscal discipline.

Oeystein Stephansen, head of research at S-E Banken in Oslo, argued the government's budget wasn't tight when seen in comparison to those over the past three years, which on average aimed to have contractionary effects on Norway's mainland GDP of around 1.5%.

Moreover, with Norway's economy currently expanding at a faster pace than in 1994 and 1995, Stephansen questioned the government's decision not to step harder on the brakes.

But moderate growth in wages, seen at 3.75% in 1997 and 3.5% next year, underpinned the government's benign inflation outlook.

And that's an encouraging sign, since the Finance Ministry has been more accurate in predicting wage growth than other institutions in recent years, due to the Labour government's close ties with the biggest labour unions, according to some economists.

Loemo called the government's wage projections reassuring, adding, 'The Ministry's forecast is an important signal of the union's wage expectations.'

However, the Labour government won't stay in power long enough to implement the budget, as it handed in its resignation Monday following defeat in September's parliamentary elections.

Labour will continue to rule as a caretaker government until the end of the week, when the centrist coalition, led by Kjell Magne Bondevik of the Christian Peoples Party, will formally assume power.

The centrists will inherit the budget document, but analysts argued they'll have a hard time making major changes because higher government spending on health care, the elderly and school reforms will receive wide backing in parliament, while it will be tough to push through increased taxation to cover the expenditures.

Nonetheless, looking ahead economists believe the Norwegian krone will remain on a firm footing against the mark.

'There isn't anything in the budget that's altered my belief in a stronger krone,' said S-E Banken's Stephansen, who expects the Norwegian currency to appreciate to around 3.9500 kroner per mark by year end.

Solid fundamentals and speculative capital flows owing to market hopes for a shift in Norway's monetary policy to an inflation target from a stable currency are expected to underpin the krone.

Fredrik Tangeraas, Dow Jones Newswire, Oslo

[14] French September consumer prices rise 1.3%

French September inflation, in line with economists' expectations, was 0.3% without energy prices, which fell 0.1% because of lower petroleum product prices, the National Institute for Statistics and Economic Studies said.

Food prices rose 0.3% in September, mostly due to a 3.2% increase in fresh food prices and especially from higher vegetable prices, the institute said.

Manufacturing prices in the private sector rose 0.5% in September from August, but were down 0.2% on the year. The institute attributed the monthly rise to higher clothing and shoe prices following the traditional August sales.

[15] Japan's August trade surplus widens

The current account surplus, which measures trade in merchandise, services, tourism and investment before adjustment for seasonal factors, jumped to 817.8 billion yen ($6.81 billion) in August, up 77.7% from the same month last year.

Although analysts had expected an even bigger jump, August was the fifth consecutive month that Japan's surplus was higher than the same month in 1996.

Japan may face greater pressure from its trade partners, including the United States, to adopt stronger policies to boost domestic demand.

Such demands may heat up ahead of the summit meeting of the Asia Pacific Economic Cooperation forum in November in Vancouver, British Columbia, Canada, said Susumu Kato, chief economist at BZW Securities.

A Finance Ministry official briefing reporters acknowledged that weak domestic demand has dampened imports. But the official said ongoing economic changes, such as Japanese manufacturers moving overseas, will keep Japan's current account surplus from expanding rapidly in the long term.

[16] Corporate and Economic Briefs

Duerr said group sales rose to 1.02 billion Deutsche marks ($569.8 million) in the third quarter to September 30, up 18% from 863 million marks in the same year-earlier period. Pretax profit increased by 38% to 27 million marks in the third quarter, versus 19.5 million marks in the third quarter of 1996, the company said. In addition, third-quarter incoming orders rose to 1.7 billion marks, up from 1.48 billion marks in the year- earlier period, it said.

The Czech industrial producer price index rose 0.4% in September from August and 5.8% from September 1996, the Czech Statistics Office (CSU) reported. That compares with a monthly rise of 0.7% in August and a 5.7% increase year on year. Construction prices in September rose 0.6% from August and 11.3% year on year, the CSU said. Agricultural prices rose 3.8% year on year, much slower than August's 7.2% annual rise.

L'Oreal said that it had created a marketing unit in Romania, Romelor Cosmetica, and another in Slovenia, Lorcos Kozmetika. The companies will sell L'Oreal Paris and Laboratoires Garnier Paris brands which had previously been marketed by agents. L'Oreal noted that it already has businesses in Eastern Europe: in Russia, Poland, Hungary and the Czech Republic. In April, L'Oreal said those four countries had more than 1 billion French francs ($168 million) in sales in 1996. The company also has a factory in Poland and is planning to open one in Russia in 1999.

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

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