European Business News (EBN), 97-10-17

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

Page last updated Fri, October 17 6:59 PM CET

CONTENTS

[01] US economic data rekindles fears of rate rise

[02] France declares France Telecom partial privatisation a success

[03] Japan says US shipping ban could hurt relations

[04] Allianz hints that it is interested in developments surrounding AGF

[05] Waigel vows to revive tax reforms after next elections

[06] EU Commission chief slams 35-hour week

[07] ERM2 will foster exchange rate stability

[08] L'Oreal first-half operating profit rises 12.5%

[09] Russia admits problems meeting IMF loan requirements

[10] Shell Australia to restructure oil business

[11] Corporate and Economic Briefs

[12] Sports Update

[01] US economic data rekindles fears of rate rise

Demand for electricity, trucks, computers and aircraft boosted the US industrial production in September to an unexpectedly large 0.7% last month, the Federal Reserve said. That pushed the US industrial operating rate to 84.4% of capacity, the highest since February 1995. The increase, from 84.1%, normally would be a warning signal of inflation, except much of it was concentrated at electricity plants and was probably temporary.

Separately, the Commerce Department said housing starts jumped 7.9% to a seasonally adjusted annual rate of 1.5 million, following drops in August and July. All regions of the country posted gains.

In advance, economists were expecting somewhat smaller gains in both housing starts and industrial production. In the markets stocks are lower in early trading as the selling momentum that began yesterday continues. In addition, bonds have weakened in response to an unexpectedly strong housing-starts report, while the dollar was flat against the Deutsche mark and higher against the yen.

Much of the strength in industry came from a 4.4% surge at utilities, pushing the operating rate to 91.2% from 87.4%. Demand for electricity rebounded after decreasing in August, when unseasonably cool weather held down air conditioning.

Manufacturing production increased a moderate 0.4%, raising the operating rate slightly, to 83.4%, from 83.3%.

In addition to light trucks, computers and commercial aircraft, output increased for semiconductors, clothing, paper, textiles and chemical products. That offset drops in production of consumer appliances and industrial machinery. Mining production fell 0.5% because of declines at coal mines and oil and gas wells.

[02] France declares France Telecom partial privatisation a success

The government stands to take in 42 billion French francs ($7.16 billion) from opening up a 20% stake of the telecommunication giant's capital to individual and institutional investors.

The finance ministry said in a statement more than 3.8 million retail investors had requested shares, making it the widest-reaching offering of a state-owned company in France's history.

As a result of the individual demand, the retail offering was oversubscribed by 2.9 times, contributing to the decision to shift shares from the institutional tranche to the retail tranche.

Dominique Strauss-Kahn, the French finance minister, told national radio that the finance ministry received more than 400 billion francs ($66 billion) worth of orders from institutional investors, making the offer 20 times oversubscribed.

Two-thirds of the demand, including 20% from US institutions, came from foreign institutions seeking to invest in France Telecom, Strauss-Kahn said.

'This shows how much confidence investors have in the French economy and how much the link with the government doesn't scare anyone when the business is well-managed,' Strauss-Kahn said.

The French government intends to retain between a 62% to 63% stake in France Telecom, Strauss-Kahn said. In addition to this public offer, the government plans a 7.5% stake swap with Deutsche Telekom and a capital increase of about 5% in the second half of 1998.

Strauss-Kahn said the successful opening of France Telecom's capital indicated that 'the alliance between the market and the state was a happy path.'

[03] Japan says US shipping ban could hurt relations

'Under the circumstances, should the US government actually collect fines from the three Japanese shipping companies or unfortunate situations materialise in which the US government took stronger measures, such as denying entry to Japanese ships in US ports or detaining them, as reported, the situation would become far worse,' Japanese Transport Minister Takao Fujii said in a letter to US Secretary of Transportation Rodney Slater.

In the letter, Fujii said that strong US action would not only have a detrimental effect on maritime and trade relations between the two countries, but 'also upon the whole Japan-US relation.'

Calling the US action 'regrettable,' Fujii also reiterated that the ban, along with previous US moves in the dispute, violated the terms of the Japan-US Treaty of Friendship, Commerce and Navigation.

And representatives of both Japanese and European Union businesses meeting in Brussels said they feel US sanctions imposed on private Japanese shipping companies in retaliation for Japanese port practices are 'unfair.'

'From my viewpoint as a private Japanese businessman, I think think this is a very unfair sanction,' said Tadahiro Sekimoto, chairman of Japan's NEC Corporation.

The row, which has defied months of negotiations, erupted into a wider dispute yesterday when the US Federal Maritime Commission said it had asked the US Coast Guard to bar Japanese cargo ships, after shipping firms failed to pay $4 million in penalty surcharges incurred in the dispute.

Washington, which argues that Japanese ports discriminate against foreign ships and push up costs, imposed sanctions on three Japanese shippers - Kawasaki Kisen Kaisha, Mitsui O.S.K Lines and Nippon Yusen KK - last month.

US and Japanese officials continued their talks in Washington through Thursday night, but a Japanese Transport Ministry official told reporters : 'The progress in the talks is not in a situation where one can be optimistic.'

[04] Allianz hints that it is interested in developments surrounding AGF

The Munich-based insurance group, keen for years to increase its French presence, has been seen as a likely candidate to play 'white knight' to AGF, as the French insurer struggles to both fend off Generali and stay independent.

'We are watching the matter very, very closely,' spokesman Chris Worthley said. 'It fits in with what (Allianz chairman) Henning Schulte-Noelle has been saying for some time, that the process of consolidation in European insurance is continuing.'

Also announced today the French stock market regulator said it has given the nod to the takeover offer by Italian insurer Assicuriazioni Generali for Assurances Generales de France.

The Conseil de Marches Financieres said AGF shares will resume trading Monday, a week after they were suspended ahead of the announcement of Generali's 300 francs ($50.6) a share bid for the French company. AGF shares last traded at 235 francs.

The CMF said Generali's bid was 'acceptable' on examination of the details of the group's cash offer for AGF and any shares which AGF may issue in its bid to acquire the insurance arm of investment holding company Worms & Cie.

AGF has declared Generali's bid hostile and has signalled its determination to defend it. But in an interview in the Financial Times, Friday, Generali chairman Antoine Bernheim insisted the company's offer, backed by investment bank Lazard Freres & Cie, was fair.

Separately Assicurazioni Generali said it is 'not surprised' by French insurer AGF's rejection of its takeover offer, a source at the Italian company said.

AGF formally rejected an unsolicited 55-billion-French-franc ($9.38 billion) bid by Italy's Generali as too cheap and said it would be seeking 'any other solution' that would offer a better deal to shareholders.

Following an emergency board meeting called to discuss Generali's bid, AGF issued a statement saying that the 300-franc-per-share offer isn't enough since it barely exceeds the group's net asset value of 282 francs per share.

'This price, which does not carry any control premium, is inadequate in the context of an acquisition of controlling interest,' according to AGF's statement. Generali's bid is 28% higher than AGF's closing share price last Friday. The shares have been suspended from trading on the Paris Bourse since then.

[05] Waigel vows to revive tax reforms after next elections

In an address to parliament, Finance Minister Theo Waigel vowed that the ambitious tax reform scuttled by the opposition Social Democrats would be reintroduced after next September's parliamentary elections.

Kohl has already made clear he would revive the plan, centrepiece of his economic reforms, if he wins a record fifth four-year term next year.

Parliament gave up on the 30 billion mark ($16.5 billion) tax cut last month after a mediation committee failed a second time to reach a compromise on the draft, though legally a final vote in the upper house was required. The cut had passed in the lower house on the strength of Kohl's majority.

Kohl pushed his plan to slash corporate and personal income taxes to postwar lows as a means of boosting investment and creating jobs at a time of record unemployment. But the opposition Social Democrats rejected the plan as favouring the high earners and increasing the budget deficit.

Meanwhile, one of Kohl's main rivals, Gerhard Schroeder, was elected to lead the upper house for a one-year term in the rotating presidency. The Lower Saxony governor is a possible Social Democratic challenger to Kohl in next year's election, although the party has not yet named its candidate.

[06] EU Commission chief slams 35-hour week

He said such legislation would only increase labour market inflexibility and therefore, unemployment.

'I can't stand these politicians who say they are trying to do something and instead are doing something that will achieve the exact opposite effect, ' Bangemann said, referring to government efforts to reduce unemployment.

Bangemann made his remarks in response to a question posed by a reporter at a meeting of EU and Japanese businessmen held in Brussels.

Bangemann said the argument that a shorter workweek will allow businesses to employ more people makes no sense.

'Why are we stopping at 35 hours per week if that is so wonderful as a measure for work, why not down to 20?' Bangemann asked.

He said fighting Europe's high unemployment levels can only be achieved if businesses are allowed to be 'innovative and creative,' and added he felt the proposed workweek regulation would be 'the death of innovativeness.'

[07] ERM2 will foster exchange rate stability

The successor of Europe's Exchange Rate Mechanism will foster exchange rate stability in the European Union, said Duisenberg.

'I believe that the new arrangement is equipped with the necessary devices to contribute to exchange rate stability in Europe,' Duisenberg said at a conference.

Duisenberg said EMR2 provides a framework to counter major competitive distortions within Europe. It will also limit short-term exchange rate volatility, he said.

Furthermore, Duisenberg said ERM2 'implies the commitment to stability- oriented fiscal and monetary policies.'

And finally, ERM2 is a way to support countries that aren't participating in the planned single currency project from the start, 'by providing assistance and incentives for economic convergence' for eventual membership in currency union, Duisenberg said.

[08] L'Oreal first-half operating profit rises 12.5%

For the full-year, French pharmaceutical and beauty company said net profit should increase from 1996 despite about 100 million francs in additional taxes due to a 15% increase in corporate taxes. In 1996, L'Oreal's net profit was 3.73 billion francs.

L'Oreal also hopes to increase both sales and pretax profit from 1996's levels, outside of foreign exchange rate movements. Sales totalled 60.35 billion francs and pretax profit was 6.63 billion francs in 1996.

L'Oreal said sales in the first nine months of 1997 totalled 51.2 billion francs, up 15% from a year earlier's 44.6 billion francs. On a similar structure and foreign exchange basis, sales would have been up 8.5%, L'Oreal said. In the first half, sales came in at 34 billion francs, up from 30.1 billion francs in 1996's first half.

Sales were helped by the full consolidation of foreign acquisitions including US make-up company Maybelline.

[09] Russia admits problems meeting IMF loan requirements

An IMF mission arrives in Moscow at the end of next week to monitor Russia's performance under the three-year loan program.

Deputy Prime Minister Yakov Urinson said Russia's tax collection rate is still lagging, but 'the situation is much better than it was before.'

He noted that top finance ministry officials already met this week to prepare for upcoming negotiations with the IMF.

'We feel there is every chance that we will receive the next tranche of this loan,' he said.

President Boris Yeltsin vowed last month to stop relying on IMF loans when the current loan program ends in 1999.

Low Russian tax collections have been a sore point since the loan deal was reached in March 1996. The fund suspended release of loan funds three times over the last year, citing poor revenue performance each time.

Urinson said adoption of a comprehensive tax code remains a priority of the government, which submitted a draft tax code to parliament this year.

The government's relations with the Duma, the lower house of Russia's parliament, have been increasingly stormy in recent weeks. A no-confidence vote was postponed Wednesday after the government appealed for talks, but the motion returns to the Duma agenda next week.

[10] Shell Australia to restructure oil business

A fourth business unit, Shell Oceania, will provide services and the restructuring will result in around 500 job losses across Shell Australia's oil products business.

'I deeply regret this development, but current profitability levels are insufficient and unsustainable, and bear no relation to the capital investment, operating costs and human endeavour we employ,' Shell Australia's executive director of oil products, Peter Duncan, said in a statement.

Shell Australia's announcement comes at a time when the oil refining industry in Australia is complaining of declining profitability. According to figures from the Australian Institute of Petroleum the returns on shareholder funds in the Australian refining sector fell to 5.2% in 1996, down from a previous four-year average of 8.3%. Net profit after tax and inventory adjustment last year amounted to 0.5 Australian cents a litre, compared with 0.8 cents/litre in 1992.

In addition, the industry is in the midst of a shake-up following Australian building products company Pioneer International's decision to exit the business. Earlier this month, Pioneer agreed to sell its 50% stake in oil refining company Australian Petroleum, to its equal partner in Ampol, Caltex Australia.

[11] Corporate and Economic Briefs

Dyno Industrier said its pretax profit jumped 33% in the first nine months of the year to 370 million kroner, from the same period a year earlier. Improved earnings from the Norwegian firm's explosives and plastics divisions, combined with high contract prices for methanol, helped boost the company's bottom line.

Content Beheer is seeking a partner, Dutch newspaper Algemeen Dagblad reported. According to the report, the Dutch commercial services company is also open to the possibility of being taken over by a larger counterpart, or making new acquisitions itself. 'We want to keep all our options open,' Content's chief financial officer Chris Gerlach told Dow Jones. But he declined to comment on whether the company is already involved in any negotiations. The report said these options are part of the company's strategic reorientation plan after it published disappointing results last month.

The German government proposal to broadly revamp the country's tax structure 'isn't dead, merely postponed,' German Finance Minister Theo Waigel said in a parliamenatary address. As expected, the opposition- dominated upper house of parliament once again formally rejected the government's tax proposal for 1998 and 1999 in Friday morning's session. Waigel repeated that the government would resume its efforts to push through its tax reform in the next legislative period following the German general elections scheduled for September 1998.

Czech retail sales in August fell 2.1% from August 1996 in fixed prices but rose 1.4% year on year when measured from January to August in fixed prices, the Czech Statistics Office reported. In current prices, retail sales increased 4% in August year on year and increased 6.3% from January to August year on year.

The closely watched lawsuit filed by the state of Texas against the tobacco industry will be delayed for a period of weeks or more because the judge needs surgery for an undisclosed illness, people familiar with the case said. A secretary for US District Judge David Folsom said yesterday that he would delay the trial indefinitely. But lawyers in the case said Judge Folsom is expected to recuperate in time for jury selection to begin in three to six weeks. The Texas suit, which seeks to recoup billions of dollars in public-health outlays it claims are linked to smoking, is the first of more than three dozen such pending suits likely to go to trial - Mississippi and Florida, reached out-of-court settlements earlier this year.

France's Compagnie Generale des Eaux said it has placed 11.5 million shares at 137 French francs each in its civil engineering unit Societe Generale D'Entreprises with institutional investors. The shares are equivalent to 28.6% of the company's stock and worth 1.58 billion francs ($267 million). The price of the placement represents a 3.2% discount to SGE's closing share price on the Paris bourse Thursday, CGE said. The deal takes effect Oct. 24. CGE, one of France's biggest industrial conglomerates, said the increase in SGE's share capital should improve the trading liquidity of SGE shares and their value. The financial institutions backing the deal have an option to acquire an extra 1.73 million shares in SGE by Nov. 21 to meet any oversubscription for the stock. There is no public offer of the shares.

[12] Sports Update

Paul Gascoigne looks likely to stay in Scotland despite speculation that he could return to the English Premiership.

"...to get a fight with Lennox, that would be the goal. Fighting Lewis would pretty much close my career." Evander Holyfield determined to become the undisputed heavyweight champion of the world before he retires.

The Williams-Renault Formula One team withdrew its appeal against Jacques Villeneuve's disqualification at the Japanese Grand Prix.

Fabrizio Ravanelli scored on his home debut as Olympique Marseille beat French first division leaders Metz 2-0.

Spanish first division club Deportivo de la Coruna sacked Brazilian coach Carlos Alberto Silva because of poor results in the first six rounds.

Dutch striker Patrick Kluivert hit the winner in injury time as AC Milan beat Sampdoria 3-2 in a first leg, third round Italian Cup match.

Fabrice Santoro of France upset former Wimbledon champion Richard Krajicek 2-6, 7-6, 7-6 to reach the quarterfinals of the Lyon Grand Prix.

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

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