European Business News (EBN), 97-10-06

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Page last updated Mon, October 06 5:12 PM CET

CONTENTS

[01] Paris expects France Telecom offering to raise $7.12 billion

[02] AGF and Agnelli family launch white-knight offer for Worms to fend off Pinault

[03] Russia signs debt restructure deal with London Club

[04] Strong pound doesn't seem to be hurting UK exports

[05] Occidental Petroleum to buy U.S. Oil Reserve for $3.65 billion

[06] German industrial data shows third successive monthly gain

[07] German joblessness is said to have dropped to 11.2% in September

[08] IFO sees German inflation within Bundesbank target range in 1997

[09] Telecom Italia shares surge after Treasury commits to selling entire stake

[10] LVMH says arbitrators are named to resolve Guinness/Grand Met issues

[11] EU/US to discuss trade differences on October 15

[12] Italy CPI climbs 1.4% in September

[13] Corprorate and Economic Briefs

[01] Paris expects France Telecom offering to raise $7.12 billion

Finance Minister Dominique Strauss-Kahn said the government would raise 42 billion francs ($7.12 billion) from the sale.

Shares in the state-owned telecommunications group will be offered to retail investors at 182 francs apiece in what is France's biggest ever initial public offering.

The pricing was largely discounted by the market, which had expected the shares to be priced at the high end of the pre-pricing range of 170 francs to 190 francs, which was set Sept. 22.

'It's within the range, on the high side. It is a fairly cautious price and is well perceived by the market,' one French broker said.

'We expected about 190 francs so the price is not that bad,' another trader said.

Trading on the grey market in the UK and in France has put the shares at around 210 francs. Grey market trading occurs before stock market trading and is settled on the first day of official trading.

French Finance Minister Dominique Strauss-Kahn said institutional investors will receive 115 million shares worth 30.2 billion, with retail investors receiving 94 million shares worth 17.1 billion.

With 23.2 million shares to be offered to France Telecom staff, and a possible 16 million extra shares available for sale by banks should the offer be oversubscribed, Strauss-Kahn said the IPO will raise 49 billion francs.

Strauss-Kahn said demand for France Telecom shares, in what amounts to the partial privatisation of the company, has been high, both from individual and institutional shareholders.

Institutional demand totaled around 350 billion francs worth of stock, far exceeding the number on offer.

Foreign demand for France Telecom shares among institutional investors, mostly from the U.S., accounts for around 65% of total demand from professional investors.

The shares on offer for retail investors includes a 10% additional tranche which the government originally set aside should demand from the public prove strong.

[02] AGF and Agnelli family launch white-knight offer for Worms to fend off Pinault

AGF said its cash and shares bid valued Worms at 465.36 francs ($78.71) a share, a 17.8% premium on its price before Pinault's September 19 offer. Pinault offered 410 francs per share.

A subsidiary shares-only offer valued each Worms share at 506.80 francs, a premium of 28.3% on the September 18 close of 395 francs.

On the basis of AGF's stated prices, Worms would be valued at between 30.36 billion francs and 33.06 billion francs ($5.06 billion).

Separately, the European Union Commission said it opened a preliminary investigation of the Artemis bid. The Commission routinely probes mergers involving companies with global sales over 5 billion European Currency Units and EU sales of over 250 million ECU. Its one-month preliminary inquiry allows for interested parties to submit comments while the E.U. determines whether to launch a deeper, four-month probe, if it has suspicions the merger would distort competition.

Pinault made his offer, through a unit of his investment vehicle Artemis, with the aim of controlling Athena and divesting himself of other units.

AGF, IFIL and the Worms family have a combined 40.4% stake in Worms -- IFIL's Someal has 19.87% while AGF has 7.22%.

If the white-knight bid succeeds, AGF will acquire Worms's Athena insurance unit on the basis of a valuation of 12 billion francs. Someal would obtain AGF's current Worms stake and the Worms family's 13.29% stake.

[03] Russia signs debt restructure deal with London Club

The formal signing in Moscow gives Russia, which took on all Soviet foreign debts after the communist superpower broke up in 1991, 25 years to pay off some $33 billion and is expected to open the way for major new foreign investment in Russia.

The rescheduling covers $24 billion in principal and $9 billion in interest arrears that have become Russia's responsibility following the 1991 Soviet breakup.

Russia's First Deputy Prime Minister Anatoly Chubais, who presided over the signing ceremony Monday, said the event should speed Russia's acceptance into the world economic community.

'Today, the leading banks of the planet recognized the irreversibility of Russian reforms,' Chubais said. 'It throws open the world's financial market for thousands of Russian companies and banks.'

The 25-year restructuring agreement is the longest ever granted by the London Club.

The deal gives Russia a full quarter-century to repay the $24 billion in principal, while the bulk of the interest arrears will be paid out to the commercial banks over 20 years.

'What we have just signed can easily be described as one of the largest financial transactions of its kind,' said Tessen von Heydebrech, a managing director at Deutsche Bank, and chairman of the bank advisory committee for the Russian rescheduling.

[04] Strong pound doesn't seem to be hurting UK exports

The figures did show weakening industrial output. UK industrial production fell 0.4% in August from July while manufacturing output fell 0.1%, which contrasts with a Dow Jones survey that forecast industrial production unchanged in August, and manufacturing output up 0.2% on the month. But the weaker-than-expected figures were offset by upward revisions to the numbers for July, according to the Office for National Statistics.

Revised data shows manufacturing output went up 0.6% in July from a preliminary estimate of 0.4%, and industrial production rose 0.9% in July from a previous estimate of 0.6%. And in the three months through August, industrial output rose 2.0% from the previous quarter, while manufacturing output rose 0.6%.

Industrial production is highly volatile and three-month output growth is considered a better guide to trends than the monthly figures, since the monthly figures are based on around just 85% of the data needed to provide the full picture. An ONS spokesman said there's no evidence to show the level of exports has been hit by the strong pound, though export prices have risen in the last month or two.

'If the domestic economy is indeed slowing, stronger demand from overseas will be welcome,' said David Coleman, economist at CIBC Wood Gundy.

The warm weather in August depressed energy output, as electricity, gas and water fell 1.5% on the month. Within manufacturing output, textiles and clothing slipped 2.9%, suggesting retailers were unwilling to add to existing stock levels, analysts said. By market sector, the key strength is in the intermediate sector, which went up 3.3% over the past three months. The 1.6% rise in investment goods is also encouraging for the outlook for future investment.

'The figures provide further confirmation that, while manufacturing no longer appears in danger of slipping into recession, the recovery remains fitful,' said Jonathan Loynes, UK economist at HSBC Markets. He argued that the data supported the view that the Bank of England's monetary policy committee should leave rates on hold this week. Other analysts agreed that industrial output is not really strong enough to cope with a further bout of monetary tightening.

The committee starts its regular monthly meeting on Wednesday, and its decision on whether to raise rates is expected at 1100 GMT Thursday.

[05] Occidental Petroleum to buy U.S. Oil Reserve for $3.65 billion

The US Energy Department said the sale will complete a two-year privatisation process mandated by Congress in the 1996 National Defense Authorization Act.

'We're getting maximum value for this asset, and we're turning one of the nation's premier oil and gas fields over to the private sector -- to a respected and experienced U.S. oil and gas producer,' said Assistant Energy Secretary Patricia Fry Godley.

The completion of the deal, expected to take place before the Feb. 10, 1998, deadline, is subject to an antitrust review by the Justice Department, compliance with environmental regulations and a 31-day Congressional review period.

The Elk Hills field includes over 47,000 acres of oil and gas reserves, 1, 000 producing wells, a 47-megawatt electricity plant and two large gas plants.

Current daily production from the field is about 60,000 barrels of oil and about 400 million cubic feet of natural gas.

Occidental Petroleum will become the new operator of the field after submitting the highest bid in the government's solicitation process.

Originally set aside in the early 1900s as an emergency source of crude oil, Elk Hills has been in commercial operation since 1976. President Clinton included the sale of the Reserve in his 1996 budget as part of an effort to privatise non-federal functions.

Occidental Petroleum explores for, develops and produces oil and natural gas.

[06] German industrial data shows third successive monthly gain

The Economics Ministry said that industrial orders rose a provisional, seasonally adjusted 1.7% from July, when they increased 1%. The rise contrasts sharply with a 3.2% decline in industrial output in August.

New orders to the manufacturing industry in western Germany rose a price and seasonally adjusted 2.3% in August from July, the German economics minister said.

Western German orders climbed 4.7% in August compared with August 1996, the ministry said. Year-on-year orders data is price-adjusted but not seasonally adjusted. Orders to the manufacturing sector in July remained unrevised on the month, showing a rise of 0.8%. The year-on-year data for July was revised marginally downward to show a rise of 6.0% compared with July 1996, rather than the 6.1% rise originally reported.

Meanwhile, new orders to the manufacturing sector in eastern Germany fell a price- and seasonally- adjusted 5.3% in August from July. Eastern German orders were up 6.1% in August compared with August 1996, the ministry said. The year-on-year data is price-adjusted, but not seasonally adjusted. July data, meanwhile, was revised downward to show a rise of 2.8% on the month rather than the 4.6% previously reported. June data remained unchanged.

July manufacturing orders to eastern Germany on a yearly basis were also revised downward to show a rise of 10.8% rather than the 12.8% rise originally released. August orders are preliminary and could be revised, the ministry said.

'This really is a surprise, but it confirms the trend that the upturn stems mainly from exports and mainly from west Germany,' said Frank Schroeder at Trinkaus & Burkhardt.

Eckhard Schulte, economist at the Industrial Bank of Japan in Frankfurt, agreed. 'I would not put too much weight on the data alone, but over the last few months, it shows that the manufacturing sector is strong,' he said. 'But there is no reason for the markets to be worried. This data does not justify an increase in the repo rate.'

However, the data supports the weekend warning by Bundesbank council member Edgar Meister, who said that German inflation was going in the wrong direction, and added that the low interest rate phase in the country appeared to be over. Bundesbank President Hans Tietmeyer also said last week that the central bank would not allow the markets or individual economic data to dictate its actions.

The German bond and money markets were unfazed by the strong data.

[07] German joblessness is said to have dropped to 11.2% in September

In non-seasonally adjusted terms, this brings the number of jobless to 4.31 million, down 64,000 from August's 4.37 million, but up some 460,000 from a year ago.

Meanwhile, German daily newspaper Handelsblatt reported in its Monday edition that the federal government now expects the average number of German jobless to be as high as 4.5 million this year, compared with previous estimates of 4.3 million.

Authoritative data for September unemployment are slated for release by the Federal Labour Office in Nuremburg on Tuesday.

In seasonally-adjusted terms, unemployment in all of Germany is estimated to have risen by a seasonally-adjusted 12,800 in September from a month earlier. In August, the number of German unemployed rose 49,000 on a seasonally-adjusted basis.

[08] IFO sees German inflation within Bundesbank target range in 1997

Ifo's study showed price pressures had eased because of the mark's recent strengthening and because retailers planned no price increases. The institute also said there was a good chance that inflation would remain within the range in 1998 provided that the mark did not depreciate sharply again and wage demands remained moderate.

The core inflation rate, which excluded public services like public transport and healthcare, had amounted to 1.5% in the past three months, barely above the rate seen in the first half of 1997.

This year's depreciation of the mark had boosted import prices, but that was offset by declines in unit labour costs and weak domestic consumer demand.

Meanwhile, the federal government now expects the average number of German jobless to be as high as 4.5 million this year, compared with previous estimates of 4.3 million, the German daily Handelsblatt reported.

A spokeswoman for the German Economics Ministry couldn't confirm the higher estimate. The newspaper, which attributed its information to 'government coalition sources' said the additional unemployed would cost the government a further 71.5 billion Deutsche marks ($39.7 billion).

The government's original forecast for unemployment this year had been 4.1 million. Post-war record highs in German unemployment earlier in the year caused the government to concede its budgetary planning had backfired, and widen its net borrowing requirement to 71.2 billion marks from 53.3 billion marks.

Jobless data for September will be released tomorrow by the Federal Labour Office. August unemployment data showed a seasonally-adjusted rise of 49, 000, or an unemployment rate of 11.4%.

[09] Telecom Italia shares surge after Treasury commits to selling entire stake

'The Treasury has finally decided to sell all of its stake in one of the companies it owns, without keeping a minority stake as it usually does,' said a Milan dealer. 'That sends a positive sign to the market.'

The sale will begin on October 20 and close on the 24th. The Treasury's sale will raise 16.5 trillion lire, and would be the largest secondary equity offering ever undertaken in Europe.

Although Telecom Italia shares fell more than 5% in three days last week, the price has risen by more than 130% in the last year, outperforming the Milan bourse.

[10] LVMH says arbitrators are named to resolve Guinness/Grand Met issues

LVMH said 'the arbitration process will resolve whether Guinness is, in practice, undergoing a change of control through its 'merger' with Grand Met.'

The arbitration process is expected to be completed within the next twelve months, LVMH said.

Despite being structured as a takeover of Grand Met by Guinness, the creation of GMG Brands will see 53% of the combined company held by former Grand Met shareholders and key management positions at the heart of the merger will be from Grand Met's management team, LVMH said.

The arbitration panel comprises of a senior judge for each side and a mutually agreed presiding judge.

LVMH said as the agreement under discussion was drawn up under French law both parties have appointed senior French members of the arbitration panel.

LVMH's arbitrator will be M. Serge Lazareff, for Guinness M. Matthieu de Boissesson, and the presiding arbitrator M. Bernard Hanotiau.

[11] EU/US to discuss trade differences on October 15

Sir Leon Brittan, the EU's trade commissioner, is expected today to tell a meeting of EU foreign ministers in Luxembourg that the two sides are working hard for an agreement, with talks likely to go down to the wire. 'We want a deal by the middle of October,' a European Commission spokesman said.

According to EU sources, the Total flap didn't sour the atmosphere at discussions on Iran and Cuba in Washington last week involving senior EU and US officials. 'The US administration isn't playing up the Total case,' said one EU official. He added that although the two sides made progress, considerable differences remain to be resolved.

Sir Leon isn't due to seek any new instructions from the EU ministers, the commission spokesman said. Instead, the emphasis appears to be on keeping rhetoric to a minimum and pursuing the trans-Atlantic negotiations.

The EU and US are trying to head off further conflict over US legislation that punishes companies doing business with Cuba, Iran and Libya. Specifically, they are seeking an accord to discourage investment in properties confiscated by the governments of these countries as well as a wider understanding on how to handle 'rogue regimes.'

When the two sides stepped back from a trade conflict on the issue last April, they set Oct. 15 as the date for reaching a full-scale agreement.

[12] Italy CPI climbs 1.4% in September

Including tobacco, said the state statistical institute Istat, prices rose 0.2% on the month and 1.5% from September 1996.

The index excluding tobacco is comparable to consumer price data released by Istat prior to January, 1996. That month, Istat changed both the categories and the weightings used to calculate the index. The ex-tobacco consumer price data is also that used for many previous Bank of Italy, government and economist forecasts and targets.

In addition to their traditional figures, EU members also provide a second set of CPI data each month, using standardized methods to calculate the figures. The EU data, however, is one month late.

Italy's August CPI harmonized to EU standards was unchanged from July and up 1.6% on the year, Istat said. These standardized CPI figures will be used as the basis of comparison when EU leaders meet in 1998 to decide which member states meet the various Maastricht Treaty criteria.

Under the Treaty, countries wishing to participate in the single currency must have had an average inflation rate over 12 months of not more than 1.5% above the average of the three best performers.

[13] Corprorate and Economic Briefs

Orkla Finans, the financial services division of Norway's second largest listed company Orkla ASA, will set up a securities house in Stockholm by the start of next year, the company said. The new unit, Orkla Securities AB, will be involved in analysis, stock-broking, and corporate finance activities. Carl Rosen, chief editor of Affaersvaerlden, a Swedish weekly business magazine, has been named managing director of Orkla Securities, the company added.

Producer prices in the Netherlands rose 4.2% in August from a year earlier, according to preliminary data, and were up 1.0% from July, the Central Bureau for Statistics said. The increase was caused mainly by higher oil prices, the CBS said.

Siemens Matsushita Components of Munich said it acquired Vogt Electronic Hong Kong Co. and its China subsidiary for an undisclosed amount on Oct. 1. Siemens Matsushita acquired the Vogt companies, which make components for energy-saving lamps, to complement its range of inductive ferrite components.

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