European Business News (EBN), 97-10-16

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CONTENTS

[01] BT insists expansion plans remain intact despite bidding war over MCI

[02] US inflation continues to gain, but remains tame

[03] B.A.T, Zurich Group agree to financial services merger

[04] Matra BAe to take 30% stake in LFK

[05] Royal Dutch/Shell Group to invest $500 million in renewable energy

[06] US, EU fail to settle Helms-Burton dispute

[07] EU approves Credit Suisse, Winterthur Insurance merger

[08] Federal Mogul makes $2.44 billion takeover offer for Britain's T&N

[09] WH Smith puts forward radical restructuring plan

[10] BTR buys Exide for $585 million

[11] Ciba nine-month sales rise 20% to over $4 billion

[12] Britain's September PSBR higher than expected at $5.1 billion

[13] Finmeccanica loss widens to $1.13 billion

[14] Merck third-quarter sales rise 17.2% on year

[15] European Union investigating Microsoft trade practices

[16] Corporate and Economic Briefs

[01] BT insists expansion plans remain intact despite bidding war over MCI

In what one industry source described as a 'dream ticket' for BT, GTE -- one of America's biggest local telecoms carriers -- launched a $28 billion cash offer for MCI.

As speculation mounted that BT had already been in talks with GTE about forming a three-way alliance after merging with MCI, the British group said only that its plans to become one of the world's leading telecoms players remained intact.

'BT's global strategy remains robust, aggressive and deliverable,' a company spokesman told Reuters, declining to give further details.

BT, which already owns 20% of America's second biggest long distance carrier, saw its shares surge in London trading as dealers said it could only win through GTE's bid.

'The rationale is that BT is in a good position to negotiate with the counter-bidders and with MCI -- and also its stake is worth more now. So it wins either way,' one dealer said.

GTE's bid comes just 15 days after Wall Street darling WorldCom launched a $30 billion all-paper bid and some analysts are already predicting an auction battle for control of MCI, America's second biggest long distance player.

Some analysts, who greeted WorldCom's bid with relief that BT would be allowed a graceful exit from a merger seen as earnings dilutive, have called on BT to swallow its pride and accept a junior partner in any three- way alliance with MCI.

But a source close to BT said the company would want to continue to call the shots in any alliance that affected its global plans.

'BT is not going to emerge as some junior partner of anything,' said the source, who declined to be named. 'BT is certainly not interested in deals in which they don't have any say.'

MCI's attractions have been growing since BT -- under pressure from investors concerned that the risks of the merger outweighed its rewards -- slashed by 20% the price of its original terms after the U.S. group issued a surprise profit warning in July.

One industry source said GTE's bid made an 'awful lot of sense' for BT's own plans. MCI had blamed unexpectedly high loss forecasts on problems breaking into the local U.S. markets. But bringing a leading local player like GTE into the fold would sow up the $200 billion U.S. markets, he said.

'You could say that to make that (BT-MCI merger) into a dream ticket, you also need someone who is in the local U.S. market but perhaps not too geographically-based,' he said. 'It could well be that everything has been accelerated (by WorldCom's bid).'

Although BT might be interested in a three-way deal with GTE -- given that its bid is successful -- the source said such a deal allowing BT a senior role would be 'horrendously complicated'.

BT, which needs access to the world's biggest telecoms market to service U.S.-based multinational corporate customers, has bid an agreed $17 billion for the 80% of MCI it does not already own.

[02] US inflation continues to gain, but remains tame

The Bureau of Labor Statistics reported that the Consumer Price Index (CPI) - the keystone measure of price pressures - rose just 0.2% in September, both with and without the unpredictable food and energy components.

Stocks are moderately higher in early trading, following the release of the tamer-than-expected data alleviated fears that inflationary pressures have started to surge.

The modest gain in the September CPI knocked bond yields lower. The Treasury's 30-year bond is up more than a half-point, pushing the bellwether issue's yield down to 6.35%.

In currency markets the dollar barely reacted to the data, remaining weak against both the the mark and yen.

Meanwhile, the Labor Department said the number of applications for state unemployment insurance rose marginally, by 2,000, to a seasonally-adjusted level of 306,000. The closely watched four-week moving average for jobless claims fell again in the latest week. The series fell 500 in the Oct. 11 week to 306,250, the lowest level since Aug. 9. Significantly, claims have held below the 310,000 level for five consecutive weeks. The last time claims remained below that level for five straight weeks was in 1988. Taken together, the data provides additional evidence that the booming economy continues to create jobs without the resulting rise in wage-led inflation that's derailed previous business expansions. The current expansion - well into its seventh year - continues to confound analysts with its mix of robust growth, low unemployment, and virtually non-existent inflation.

'Inflation is really very well contained at a time when the economy is in good shape,' says Marilyn Schaja, economist at Donaldson, Lufkin & Jenrette Securities.

Still, data released today didn't change economists' general sense about conditions in the economy and the outlook for Federal Reserve policy. The economy, they say, continues to exhibit strength at a time when many thought growth would slow considerably. That means the risks of higher inflation remain, a condition that may prompt the Fed to boost rates in the months ahead.

'There aren't any signs inflation is accelerating, but there's also no sign the economy is slowing,' notes John Williams, chief economist at Bankers Trust Co.

Williams says U.S. labour markets remain strong at a time when the pool of available labour is falling.

Meanwhile, inventory data released by the Commerce Department suggest higher levels of production going forward to keep up with consumer demand, he notes. Commerce said U.S. business inventories rose 0.2% in August to a seasonally adjusted $1.030 trillion. The August increase followed a revised rise of 0.1% in July to an adjusted $1.028 trillion. Commerce previously reported July's rise at 0.2%.

August inventories on a seasonally adjusted basis were up 3.1% from a year earlier. Total business stocks equalled 1.37 months' sales in August, up from 1.36 months' sales in July, but unchanged from June.

The inventories data, analysts say, indicate that factories may need to produce more in the months ahead to keep pace with consumer spending. Higher production could place further pressure on an already strained employment sector.

Steven Wood of BA Securities notes that robust consumer spending in the third quarter helped clear out inventories, a development that should result in inventory building to boost economic growth going forward.

But even with the economy flexing its muscles, inflation continues to surprise even the most optimistic of Wall Street analysts.

Consumer prices rose at a 2.5% rate in the third quarter, following gains of 1.8% and 1.0% in the first and second quarters, respectively. Those levels compare with an increase in 3.3% for all of 1996.

The food and energy components, which had accelerated in 1996 after acting as moderating influences throughout most of the preceding five years, were largely responsible for the deceleration thus far in 1997, BLS said.

Food prices rose just 0.1% in September. The food index has risen 1.7% thus far in 1997, following a 4.3% rate of growth in all of 1996. All major grocery store categories have shown marked deceleration thus far in 1997, relative to 1996, except for coffee prices, which have increased at a 33.8% annual rate in the first nine months of 1997 after declining 6.7% in all of 1996.

Energy prices rose 1.3% in September. Within that broader category, gasoline prices were up 1.8%, natural gas costs were up 2.2%, and electricity costs were up 0.5%. Fuel oil prices were down 0.1%. But the energy index, which increased 8.6% in 1996, declined at a 2.5% rate in the first nine months of 1997. Petroleum-based energy fell at a 5.1% annual rate, while energy services rose at a 0.5% rate.

William Pesek Jr., Dow Jones Newswires, Washington

[03] B.A.T, Zurich Group agree to financial services merger

B.A.T's tobacco interests in the form of British American Tobacco, which last year accounted for nearly 13% of the world cigarette market, will become a separately listed company.

The operations of Zurich and British American Financial Services are to be transferred to a new Swiss company, Zurich Financial Services Group, based in Zurich and employing some 66,000 staff.

B.A.T shareholders will own 45% of the new company through a separate holding company, Allied Zurich, and Zurich shareholders will own 55% through Zurich Allied.

The rationale for the changes is to release the underlying value of both B.A.T's financial and tobacco operations and to allow the businesses to be developed separately.

The company said opportunities for the tobacco business in liberalised and growing markets had increased significantly in recent years.

Splitting them out would enable their value to be more transparent and provide better returns to shareholders over the long term.

Initially, however, warned B.A.T chairman Lord Cairns, there would be some reduction in the dividend payout for B.A.T shareholders.

B.A.T shares leapt on the initial announcement but eased back to their opening level of 600 pence in early afternoon trade.

The combination of Zurich and B.A.T's financial services assets would, said the companies, create a portfolio of world class insurance, reinsurance and asset management businesses.

The emphasis will be on wresting more value from the new organisation.

'Size is not what matters most to us. Rather it is the strategic positioning, the enhancement of the earnings potential,' said Zurich's chairman and chief executive officer Rolf Hueppi at a joint news briefing with Lord Cairns. Hueppi will head the management of the newly-merged concern.

'This transaction is not a short-term cost savings measure...What you have is a positioning taking into account long-term developments within world markets, in order to take part in this as optimally as possible,' Hueppi said.

[04] Matra BAe to take 30% stake in LFK

A spokesman for DASA declined to reveal the price for the French-British company's stake.

The deal, which must be approved by cartel authorities, 'is a further important step in the direction of European industrial structures, which is urgently needed to raise worldwide competitiveness,' said DASA, a unit of Daimler-Benz.

DASA said there are a number of significant synergies between Matra and LFK that will make it possible for them to provide cost-effective solutions to their customers.

DASA's spokesman stressed that tri- and multi-lateral European defence industry joint ventures and cooperations are essential if European aerospace companies are to maintain and build their market presence, on both the civil and defence sides of the industry.

'Looking at the significant market for defence products that the three countries (Germany, France, UK) represent, Matra BAe and LFK will be the sole group in Europe in a position to offer competition to the US challenge, ' DASA said.

Matra is a joint venture between British Aerospace and France's Lagardere group. In 1996, it had sales of 3 billion Deutsche marks ($1.6 billion), DASA said.

[05] Royal Dutch/Shell Group to invest $500 million in renewable energy

Shell International Renewables will use the group's existing experience in solar energy to expand this business with the aim of capturing a 10% share of the world's solar energy market, currently valued at $1 billion annually, by 2005.

SIR will bring together the group's current activities in solar, biomass and forestry and will expand the existing tree plantation business and develop biomass power generation activities.

'SIR believes that biomass, which is already an established source of energy in some parts of the world, will become increasingly competitive for power generation as conversion technologies improve and wood becomes available from sustainable plantations,' Shell said.

Other investment opportunities in wind power and other renewable energy sources are also being appraised, the group said. The new renewables business will sit alongside Shell's existing business sectors of exploration and production, oil products, chemicals, and gas and coal.

[06] US, EU fail to settle Helms-Burton dispute

The Helms-Burton Act at the heart of the row allows US citizens to sue in American courts foreign companies whose business involves property confiscated since Fidel Castro took power in Cuba. Executives from such companies can also be denied visas to enter the United States.

After two days of talks, last night both sides could not meet a self- imposed midnight deadline, but enough progress had been made to avoid any action that would heighten the standoff, EU spokesman Nigel Gardner said.

'There is enough common ground for further talks,' he said. The negotiations are expected to resume in Paris next week.

Up to last week, the 15-nation EU had said it was ready to carry out a threat to challenge the US laws before the World Trade Organization as soon as today. But EU officials said during the talks the WTO complaint would not be activated if Washington refrained from punishing EU companies doing business with the three nations Washington has targetted as rogue states sponsoring terrorism.

'There is a common desire to carry on talking,' said an EU official close to the talks, who asked not to be identified. 'We well keep the (WTO complaint) panel in the back of our pockets.' The chief US negotiator, Assistant Secretary of State for economic and business affairs Alan Larson, expressed hope earlier the talks could continue beyond Wednesday even if no agreement was reached.

'There has been good faith,' the EU official said. 'A dialogue will continue.' Both sides brought new proposals to the table during the second day of negotiations but the transatlantic gap remained sizeable, officials said. The US administration argues that so-called rogue states should be isolated politically and economically while the EU says it has kept open some political and economic channels to maintain some leverage with the regimes.

The issue came to a head late last month when the US administration reacted angrily to French oil giant Total signing a $2 billion contract to develop an Iranian natural gas field. Washington is investigating the deal under the US Iran-Libya Sanctions Act, which may result in sanctions against the French company.

[07] EU approves Credit Suisse, Winterthur Insurance merger

The Commission noted in a statement that the merged company will be the market leader in commercial banking and non-life insurance, and will be the No. 2 in Switzerland's life insurance market.

It added that the new venture will be among the five largest European financial groups and the third largest globally in asset management.

Despite this, the Commission said the merger 'doesn't add significant market share in any of the sectors concerned within the EU' and 'doesn't result in any particular problems from a competition point of view.'

The presence of other large banks and insurance companies on the European market will also ensure the Credit Suisse-Winterthur group doesn't dominate the market, the Commission said.

[08] Federal Mogul makes $2.44 billion takeover offer for Britain's T&N

That price is a 42.9% premium to T&N's closing share price on Sept. 25, the day before T&N said Federal-Mogul had approached it with an offer of 235 pence a share in cash, or about £1.25 billion.

The per-share offer price is also 2.5% above where T&N shares closed Wednesday in London at 253.5 pence.

Sir Colin Hope, T&N chairman, said he was 'pretty relaxed' shareholders would accept the offer, allowing the takeover to be completed by early 1998. 'They (shareholders) have indicated to us if we backed the offer they would look at it seriously and would not be too greedy,' Hope said.

Federal-Mogul executives said in an interview with Dow Jones Newswires that the Southfield, Michigan-based company would also take on all of T&N's debt once the deal closes, though they wouldn't estimate what that figure would be. Initially, Federal-Mogul will use a bridge loan from Chase Manhattan Bank to pay for its purchase, later replacing that loan with a mix of debt and equity. The combined group will be the world's leader in auto sealing products and piston rings. Federal-Mogul will also add to its engine-bearing business, which is already a global leader.

The deal 'goes to the heart of our strategy,' Federal Mogul Chairman and Chief Executive Officer Richard A. Snell said in the interview and should be 'mildly accretive' to earnings from the first year.

Federal-Mogul also expects annual pretax savings of more than $100 million starting in the second full year following the close of the acquisition, though reaching that level of synergies will also require the company to take a one-time restructuring charge approximately equal to the annual savings level.

[09] WH Smith puts forward radical restructuring plan

At the same time, the group rejected revised takeover proposals from former employee Tim Waterstone, claiming they 'do not make any significant difference to the original proposals.' W H Smith's new Chief Executive Richard Handover denied the W H Smith plans were simply a response to Waterstone's moves.

'That process started before Tim Waterstone made his approach,' he said. I wasn't prepared to accept the status quo as the way ahead. But Tim Waterstone's approach clearly spurred us on.' It wasn't immediately clear what Waterstone, who was not available for comment, would do after the rejection of his latest proposal. However, some followers of the company thought it possible he might return with a hostile takeover plan. There was also talk among dealers a larger predator could now become involved, with the U.S. booksellers Borders Group and Barnes & Noble being mentioned.

Borders, which last month agreed a £40 million ($65.2 million) takeover of the U.K.'s third-largest independent book retailer Books Etc, and its arch- rival Barnes & Noble, are both thought to be looking to establish leading positions within the U.K. market.

Analysts have attached a break-up value of around 450 pence a share to W H Smith, although in the current U.K. bull market it is thought a bidder would have to pay nearer 500 pence to secure a takeover. Bid speculation as well as the shake-up plans fuelled a further rise in W H Smith's share price Wednesday.

The company said Waterstone's new plans were 'not in the best interest of shareholders, do not create any significant value and are not financially sound.'

Waterstone, who had originally proposed a 200 pence a share cash payment plus shares in a new W H Smith, revealed a revised plan earlier this week, under which the amount of cash to be given to shareholders would be reduced to 150 pence a share in order to address concerns over the level of debt in the new company.

W H Smith's shake-up plan envisages a future based on three core businesses - the W H Smith chain, newspaper distribution and U.K. and U.S. travel retail. The Waterstone's books chain will be demerged, while the music retail units - 75% of Virgin Our Price in the UK and The Wall in the U.S. - will be sold. The latter will take place 'over time,' a statement from the company said.

Richard Branson's Virgin Group, which owns the other 25% of Virgin Our Price, is seen as the most likely buyer of W H Smith's stake. Earlier this year, W H Smith was reputed to have rejected a £135 million ($220 million) offer from Virgin for its interest.

A shareholders meeting will be called to present proposals for the Waterstone's demerger, which the group anticipates will take place during the first six months of 1998.

Paul Jarvis, Dow Jones Newswires, London

[10] BTR buys Exide for $585 million

The UK industrial conglomerate said it will tender $352 million, or $29 per share for Exide's equity, and will also assume approximately $233 million of Exide's debt. BTR will fund the acquisition through its existing credit facilities.

BTR will integrate Exide into its control systems unit, which supplies industrial batteries serving similar markets. The acquisition is expected to enhance the group's earnings in 1998.

A spokesman said the deal won't have a significant impact on BTR's gearing but will establish its control systems unit as a leading player in the global market for uninterruptible power supply systems, a market that is growing at annual rate of 11%. Growth rates are higher for computer networking and telecommunications applications.

BTR's Chief Executive Ian Strachan said the group's control systems unit will benefit from Exide's leading market position, innovative product technology and strong computer customer relationships.

In return, Exide will gain expanded access to emerging markets in Asia and Eastern Europe, where BTR has established sales and distribution networks, as well as increased access to the telecommunications market.

BTR has entered into an option agreement with four Exide Electronics shareholders, including Finland's Fiskars Oy, to acquire and have voting rights over 19.9% of the company's share capital. BTR expects the deal to be completed before the end of the year.

In the year ended June 30, Exide reported a profit before interest, tax and amortization of $51 million on sales of $562 million. Exide's net assets at June 30 were $170 million, excluding net debt and intangibles.

[11] Ciba nine-month sales rise 20% to over $4 billion

The Swiss chemicals company said that barring unforeseen currency fluctuations or economic changes, 1997 earnings before interest, taxes and restructuring costs should reach - and possibly exceed - the projected return of 15% of sales. Full-year sales were expected to grow 'strongly'.

Ciba, which was spun off from Novartis earlier this year, said it expected to make 'significant progress' in lowering its asset-base to bring it into line with the size of its business. But it warned the rise in business volume would make it 'difficult' to reduce assets in absolute terms. Ciba said the increase in sales was due to strong volume growth. Decreases in sales prices slowed in the third quarter and could even be raised in some areas, it added.

The company reported 'slightly increased' growth rates in Europe and the U.S. and 'above average' growth in most of Asia. However, growth declined in Japan.

The additives division saw sales grow 14% to 1.77 billion Swiss francs from 1.55 billion Swiss francs in the first nine months of last year. In local currencies, sales grew 2%.

Consumer care sales grew 22% to 881 million Swiss francs from 726 million Swiss francs, or 9% in local currencies.

Chief financial officer Michael Jacobi said full-year growth would probably be above 15%, but would not exceed the 16.7% reported in the first six months of the year.

[12] Britain's September PSBR higher than expected at $5.1 billion

The PSBR was more than the median forecast in a Dow Jones survey of £2.4 billion, though it was less than the PSBR of £3.35 billion in September 1996.

The cumulative PSBR for the first six months of the 1997-98 financial year was £8.60 billion, down from £15.69 billion a year earlier.

Excluding privatisation proceeds from the sale of state-owned industries, the PSBR was £3.81 billion in September, compared with $4.35 billion a year earlier. This underlying PSBR removes distortions from the sale of public assets and is a better guide to government finances.

An ONS official warned data on bank deposits by the central government and by public corporations had to be estimated in September, because of changes in the way the Bank of England is handling this data, which opens the possibility of larger-than-normal revisions for September appearing in the October PSBR data.

The Treasury also predicts that government revenues will rise 6.1% to £274.3 billion, buoyed by strong economic growth. As revenue growth is expected to outstrip that of spending, the PSBR is forecast by the Treasury to fall to £13.3 billion in 1997-98, excluding the proceeds of the one-off 'windfall tax' on the profits of utilities companies.

[13] Finmeccanica loss widens to $1.13 billion

The state-controlled engineering holding company said its losses were mainly due to one-time costs it quantified at about 1.6 trillion lire, which were partially related to a change in group strategy.

As its restructuring moves forward, Finmeccanica said it is focusing on seeking and finalising alliances and joint ventures with partners in its defence, helicopter, civil and military aeronautic, space, energy and transportation businesses.

As part of its industrial plan, Finmeccanica is planning to launch a 2.0 trillion lire capital increase through the issue of ordinary shares and convertible bonds and/or bonds with warrants good for Finmeccanica ordinary shares. An extraordinary shareholders meeting will be called within 60 days to decide on this proposal.

At the same time, Finmeccanica said it's planning to sell off activities which should bring in fresh cash and reduce consolidated debt for a total figure of about 3.0 trillion lire.

Majority shareholder, giant state holding company Istituto per la Ricostruzione Industriale (I.IRI), has said it will underwrite the cash call, Finmeccanica noted.

Finmeccanica said it didn't expect its operating performance to change much in the second half of the year, since the corrective actions being taken won't have come into affect.

[14] Merck third-quarter sales rise 17.2% on year

German pharmaceuticals company Merck said it will pay a 0.25 Deutsche mark bonus in addition to a 1.25 mark dividend for 1997. In 1996, Merck paid a dividend of DM1.25.

Merck also said group sales for the first nine months of 1997 rose to 5.92 billion marks ($3.4 billion), up 15% from the same period a year ago. Adjusted for currency effects, that's up 9.2% from a year earlier. Merck, which didn't provide comparable year-earlier figures, attributed the increase in group sales to its business abroad.

Merck also said profit in 1997 will rise 50% from 1996's 502 million marks. In the fourth quarter of 1997, Merck said it's counting on a continuation of the positive developments of the first three quarters.

'In total, 1997 will be a very successful year for Merck,' the company said in a press release.

[15] European Union investigating Microsoft trade practices

They said the EU executive Commission was examining 'half a dozen' cases related to Microsoft practices of which at least two are based on complaints from competitors.

There was no official reaction from the EU head office. 'Our services, either prompted by press articles or complaints or through our contacts with the U.S. Department of Justice have a series of Microsoft-related cases on our table,' said one source, who asked not to be named.

One complaint is believed to have been lodged by a European company and deals with Microsoft licensing practices. The European Commission has already sent a 'statement of objections' to Microsoft based on that complaint, listing anti-trust issues and will stage hearings soon.

Microsoft is the world's largest developer, maker and supplier of PC software. Its MS-DOS and Windows operating systems are used in more than 120 million personal computers. In today's edition, the Belgian daily Het Belang van Limburg said one of Microsoft's competitors has complained about the way the software giant 'wants to conquer the Internet.'

The licensing practices complaint is believed to focus on discounts Microsoft offers customers that shut competitors from the market.

EU competition chief Karel Van Miert has said he would be watching developments in on-line services and the Internet. He was in New York today and may meet with Federal Trade Commission officials while in the United States.

The Commission has a deal with Washington letting antitrust authorities from both sides cooperate on mergers and related issues arising in the United States and Europe.

EU officials said the complaints against Microsoft did not touch on its purchase of a minority stake in Apple.

The Department of Justice is examining that venture as well as Microsoft's practices in Internet software generally. Also, the U.S. Department of Justice is examining three investments in the infant market for video technology on the World Wide Web.

[16] Corporate and Economic Briefs

Peninsular & Oriental said its ferries division saw significant volume increases in the third quarter, but felt continuing rate pressure on cross- Channel services. Total traffic in the third quarter were strong across all routes. Passenger volume increased 12% to 4.15 million from 3.72 million, while tourist vehicle numbers rose 17% to 839,881 from 719,787 and freight units rose 18% to 408,620 from 346,196. P&O said it hopes the European Union Commission and the UK government will soon decide whether to approve P&O's plan to merge its cross-Channel ferry operations with those of Sweden's Stena Line.

UK electricity regulator Stephen Littlechild said that the Office of Electricity Regulation, or Offer, will set a ceiling on the charges made by Scottish Power and Scottish Hydro-Electric to second tier suppliers. The 'ceiling' is part of a specific set of proposals announced by Offer in regards to trading arrangements in the Scottish electricity market.

The Dutch merchandise trade surplus narrowed to 2.75 NLG in June from 3.85 billion Dutch guilders ($1.95 billion) in the same month a year ago, the Central Bureau for Statistics (CBS) said. In May 1997, the trade surplus was 1.88 billion guilders.

The number of German corporate insolvencies in July fell 1.2% from one year earlier to 2,271 cases, a turnaround from June, the Federal Statistics Office in Wiesbaden said. 'After a particularly strong rise in June, the development in July points to the trend noted earlier in the year, which speaks more for a stagnation in the number of insolvencies,' the office said. In June, corporate insolvencies had climbed 26% from the previous year. In the period from January through July, corporate insolvencies numbered 15,850, up 7.1% from the like period a year earlier.

A unit of ING Group of the Netherlands tentatively agreed to buy 10% of troubled Thai bank Siam City Bank for $35 million to $40 million. Investment analysts expect more such purchases since Thailand on relaxed restrictions on foreign investors. But analysts caution that the prices being asked by Thai banks are in some cases well above what potential buyers are willing to pay, given the likelihood of a lengthy downturn in the Thai economy, bad loans on the banks' books, and a 10-year time limit on foreign ownership of financial institutions.

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