European Business News (EBN), 97-03-24

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

Page last updated March 24 1730 CET

CONTENTS

[01] Krupp drops takeover bid for rival Thyssen

[02] Bank of England proposes tighter scrutiny of banks

[03] Gehe more than doubles profit, after selling 5 drug units

[04] C&W Communications is on track for merger in April

[05] Waigel links tax and welfare spending cuts to planned European currency union

[06] Inchcape posts 12% rise in headline profit, and said it will invest for expansion

[07] U.K. current account swings to a fourth-quarter surplus

[08] Comsat plans to refocus to shore up balance sheet

[09] Blue Circle earnings climb 13%, in line with expectations

[01] Krupp drops takeover bid for rival Thyssen

Krupp had set a Thursday deadline for progress on a joint venture and had threatened to resume its 13.6 billion Deutsche mark ($8.1 billion) hostile bid for shares of the larger Thyssen.

But the firms agreed that a resumption of the unfriendly attempt would be 'superfluous' because talks were progressing well and 'such a merger makes possible the survival of the steel industry in Germany.'

Even in a friendly merger, however, thousands of jobs are likely to be in jeopardy in Germany, where unemployment is above 12%, the highest in 64 years. Up to 50,000 steel workers had planned to stage a mid-day protest against the takeover bid outside Deutsche Bank's Frankfurt headquarters. The union blames the bank for backing Krupp's move.

The union did not immediately react to the Thyssen-Krupp announcement, but workers at both companies steelworks in the Ruhr valley region have protested any merger.

Krupp says the two concerns' activities overlap in steelmaking, automotive supplies, capital goods, manufacturing and trading. They are also involved in telecommunications and engineering.

Thyssen employs 111,000 people and Krupp has 66,000 employees. Georg Bongen, head of the workers' council at Thyssen, told the Sunday newspaper Bild am Sonntag, 'We are afraid that our future soon will be decided by the banks, not by a democratically elected government.'

Meanwhile, a Deutsche Bank board member who kept German steelmaker Thyssen in the dark about Krupp's hostile takeover plans denied that he had acted improperly.

But the banker, Ulrich Cartellieri, did not rule out giving up his seat on Thyssen's supervisory board.

Some German politicians and commentators have criticised Deutsche Bank for aiding Krupp in a hostile bid - a rarity in Germany's cosy business world - and Cartellieri for not resigning from his Thyssen post to avoid a conflict of interest.

Deutsche Bank blasted back Monday, declaring that 'accusations of Wild West manners and conspiracy theories are without foundation.'

About 1,000 Thyssen workers marched in protest Monday to the bank's main branch in Duesseldorf, where Thyssen is based.

Cartellieri issued a statement Monday denying he used his position as a supervisory board member to gain access to information about Thyssen to help Krupp prepare its bid.

He said he had 'at no time given information to Krupp about Thyssen.'

He also said that revealing Krupp's plan for a hostile bid to the Thyssen supervisory board would have been 'improper use of business information about third parties.'

Cartellieri said he would invite a debate on his actions at a Thyssen supervisory board meeting Thursday. He was quoted as telling the weekly news magazine Focus that he would decide after the meeting whether to give up his post.

Krupp's bid raised a furore because it violated a German tradition of trying to sort out problems of industry by a consensus between labour, management, politicians and banks, who often are key shareholders and hold boardroom seats.

Critics say also that bankers often don't make tough managers, but the government has not attacked the system.

Gerhard Schroeder, the governor of Lower Saxony state and a board member at Volkswagen, said the hostile bid 'goes against a business culture that has served Germany very well.'

[02] Bank of England proposes tighter scrutiny of banks

The Bank of England released a consultative paper outlining new proposals to ensure banks have sufficient checks in place. The central bank's action comes in the wake of criticism that it did not do enough to prevent the collapse of Bank of Credit and Commerce International and Barings.

'We support the Bank of England's move to risk-based assessment,' said a BBA spokesman. 'It is more important to improve the quality of supervision than simply the quantity.'

The spokesman said the consultative paper recognises the value of risk assessment in improving supervision without necessarily increasing its burden.

'The BBA will work through the proposals in detail to ensure that their theory will be applied efficiently to the everyday practices of banking,' he emphasised.

Under the proposals, appointed inspectors will spend more time on-site at banks in the future to assess whether sufficient controls are in place.

High-risk banks will find themselves subject to greater scrutiny and may be forced to increase their capital if they take greater risks. They could even face having their license withdrawn by the central bank as the last resort.

According to the Bank of England's plan, a total of nine evaluation factors will be applied to most banks every year, with those deemed to have low risks facing less stringent supervision. The cost of supervision, in terms of management time or fees, should also be lower for a bank with a low risk profile.

Inspectors will visit every business grouping which accounts for 5% or more of revenues, pretax profit or capital, or any other unit which poses a significant risk to the group.

The central bank has found that the proposed reforms, which have been drawn from good practice already in operation, involve a great deal more work than in the past.

One of the banks concerned required 23 sets of meetings to fulfil the central bank's inspection criteria.

The Bank of England hopes the new framework will give it a clearer understanding of the risks banks face.

'This will enable the Bank to display more consistency in carrying out its supervisory responsibilities and to assess more systematically whether a bank continues to meet the minimum criteria for authorisation,' said the report.

The proposals build on changes proposed by consultants Arthur Andersen last year and any comments are invited before the end of May.

[03] Gehe more than doubles profit, after selling 5 drug units

And in the current year, the German pharmaceutical wholesaler expects its acquisition of Lloyds Chemists of Britain to add another 1.7 billion marks to revenue.

Gehe said it also expects Lloyds to contribute to group earnings this year. In January, Gehe won an 11-month takeover battle for Lloyds when rival bidder UniChem of Britain said it wouldn't top Gehe's offer.

Pretax profit, excluding the extraordinary items, was up 16% in 1996 at 407 million marks, said the company, who didn't supply a comparison figure for 1995.

Gehe announced in December that it planned to pay an unchanged regular annual dividend of 1 mark per share, plus a bonus dividend of 0.3 marks to allow shareholders to 'participate in the extraordinary gain from the sale of its drug manufacturing division.'.

[04] C&W Communications is on track for merger in April

C&WC announced the formal board recommendation of offers agreed last October to assume majority stakes in Bell CableMedia and NYNEX CableComms Group.

When completed, C&WC will become Britain's second biggest domestic telecoms company and its largest cable television distributor with about 1.2 million telephone and 580,000 television subscribers.

Shares in the new company will be listed on the New York and London stock exchanges.

In a pro-forma income statement, C&WC said the merged business would have earned �93 million ($149 million) on sales of �1.514 billion for the nine months ended Dec. 31.

Last year, Bell CableMedia agreed to take over Videotron Holdings and to merge its enlarged U.K. cable business with that of NYNEX CableComms and with Mercury Communications, the U.K. business unit of Cable & Wireless.

C&WC's shareholders include: Cable & Wireless with a 52.6% stake, U.S. regional telephone operator NYNEX, with 18.5%, and Bell Canada, with 14.2%. Minority shareholders in Nynex CableComms, currently listed on the London Stock Exchange, and in Bell Cablemedia, listed on Nasdaq, will receive new shares accounting for about 14.7% of C&WC.

Earlier this year, Cable & Wireless announced its withdrawal from a joint venture with Veba to develop a second German telephone network. Since then, Cable & Wireless has discussed establishing links with Deutsche Telekom, either directly, or through Global One, the German telecom giant's international service alliance with France Telecom and the U.S.'s Sprint.

[05] Waigel links tax and welfare spending cuts to planned European currency union

In an interview with German magazine Der Spiegel, Waigel also said it might be necessary to cut welfare benefits, but he said the measures would 'only come at the end of all efforts, never at the beginning.'

His comments prompted criticism from opponents and coalition allies alike.

Waigel called for new austerity measures, particularly in the area of social expenditures, to help Germany meet the Maastricht Treaty requirements that currency union participants limit government deficits to 3% of gross domestic product and debt to 60% of GDP.

Germany has 'a good chance to fulfil the 3% deficit criteria of the Maastricht Treaty,' Waigel said. But 'additional measures' may be necessary 'to be on the safe side,' he said.

Fiscal and economic data from 1997 will be used to choose the first group of currency union members in early 1998.

Separately, the parliamentary leader of the governing Christian Democratic Union, Wolfgang Schaeuble, also said Germany may need additional fiscal austerity measures.

Schaeuble said in an article in the weekend edition of the International Herald Tribune that Germany will meet the 3.0% deficit to GDP target this year, despite record high unemployment.

Nevertheless, he stressed, 'We must not change the criteria. That means 3.0%. Three-point-zero. We are determined under every conceivable scenario to do everything to reach the 3.0%.'

The mere hint that Waigel might raise taxes brought protests from coalition allies who have only just launched a first round of tax-cutting legislation to take effect in 1998.

Guido Westerwelle, general secretary of junior coalition partners the Free Democrats, said it was foolish to say cuts in social security were needed because of EMU.

'The welfare state must be rebuilt -- but not because of the euro,' Westerwelle said before a party meeting.

Westerwelle and FDP leader Wolfgang Gerhardt also warned against imposing tax increases to finance EMU entry. Chancellor Helmut Kohl's coalition, in power since 1983, nearly collapsed last autumn when the FDP objected to a petrol tax hike.

More predictably, opposition Social Democrats accused Waigel of hinting at tax rises now while promising big cuts by 1999 which would rip a 50 billion mark ($30 billion) hole in state finances.

'Waigel is playing with fire,' SPD finance spokesman Joachim Poss said. 'His unfinanced tax plans threaten to blow German membership of European monetary union.'

[06] Inchcape posts 12% rise in headline profit, and said it will invest for expansion

The group said that a recovery in its motors business and recent divestment's helped boost 1996 pretax profit, before exceptionals, to �165.1 million from �146.8 million in 1995, with more improvement expected in 1997.

The group took total exceptional charges of �58.1 million in 1996, related to losses on sales and closings. Such charges in 1995, which also involved exceptional operating expenses, totalled �129.4 million.

Inchcape Chairman Sir Colin Marshall expressed optimism about the future, saying: 'As 1997 unfolds we are confident that there will be a further improvement in profits from our continuing businesses.'

Marshall also outlined the group's investment plans, saying it would concentrate on improving current businesses. In its motors division, Inchcape will invest in upgrading computer systems, while looking for opportunities to expand its existing franchises into new markets, he said.

In bottling, it plans to open two Coca-Cola plants in Russia later in 1997 and to continue its expansion in Peru. In a separate announcement, the company said its Embotelladora Latinoamericana bottling company in Peru would acquire Peru's San Luis and Kola Inglesa soft drink brands.

Inchcape values the brands and assets at �24.6 million. The company termed marketing services results 'disappointing,' with its operating profit falling 7% to �30.2 million.

[07] U.K. current account swings to a fourth-quarter surplus

Britain showed a fourth-quarter current account surplus of �873 million ($1.39 billion), compared with a revised deficit of �293 million in the third quarter. The trade surplus in invisibles expanded to �3.45 billion from �2.62 billion.

'These are excellent figures showing the current account almost in balance, ' U.K. Chancellor of the Exchequer Kenneth Clarke said. 'They show that this time we have healthy growth which is not running into the balance of payments problems which caused past booms to turn into bust.'

The surplus was higher than market forecasts of �100 million. The Office for National Statistics attributed the unexpected strength to trade in services, which showed its highest ever quarterly surplus.

But the markets largely ignored the trade data, with some economists saying the figures didn't represent the true impact of sterling's strength during the quarter.

In 1996 as a whole, the current account was in deficit by just �14 million, compared with 3.74 billion in 1995 due to improved balances for investment income and transfers which more than offset a worsening in the balance for trade in goods and services.

Britain also showed healthy growth in its gross domestic product for the fourth quarter. GDP expanded a seasonally adjusted 0.8% in the fourth quarter from the third quarter, unrevised from previous estimates. GDP was also 2.6% higher in the fourth quarter compared with the same three months a year earlier, revised down slightly from a previous estimate of 2.7%.

The government forecast in its November budget that the deficit would total �2.25 billion last year.

[08] Comsat plans to refocus to shore up balance sheet

According to the Wall Street Journal, William Smith of William Smith Special Opportunities Research priced the unit at about $215 million, but said that it could fetch as much $350 million if sold to a strategic buyer in the wireless communications-equipment business. The unit's products include wireless-communications antennae and earth stations.

A company spokeswoman said the restructuring plan was designed to refocus the company on its core businesses-satellite-communications services and digital networking.

The company began expanding into the entertainment business in 1989 through what is now called its Ascent Entertainment Group and into telecommunications- equipment making through a merger that formed Comsat RSI in 1994. Those moves 'defocused us and strained our financial position,' she said.

The move is also an acknowledgement that Comsat has been unable to sell its 80% stake in Ascent. Comsat has been seeking a buyer since last October for its stake in Ascent, valued at about $300 million, but has been unable to reach an agreement to sell the unit. Ascent operates two Denver sports teams and provides cable television to hotel rooms.

Comsat said it expects approval from the Internal Revenue Service in May for a tax-free spin-off to shareholders of its stake in Ascent and will proceed with the spin-off shortly thereafter, unless a buyer emerges. Shares of Ascent are publicly traded.

In part because the cash-strapped satellite company will not receive the revenue from the sale of Ascent, Comsat said it will use the proceeds from the sale of Comsat RSI to hold down its debt. Federal communications regulations require that Comsat's long-term debt stay below 45% of its capitalisation.

The company said it will issue short-term debt to keep its long-term debt level below that limit and expects to pay off the short-term debt with the proceeds from the sale of Comsat RSI.

In another move to shore up its balance sheet, Comsat said its board of directors will consider changing its dividend, which has been more than its per-share earnings in recent quarters. The company will also postpone its annual meeting, which was originally scheduled for May.

Comsat also said it will petition the Federal Communications Commission for 'nondominant status' in international satellite telecommunications, in recognition of the increasing competition in that market.

The change in status would remove the regulatory limits on its earnings from that part of its business. The FCC recently characterised AT&T as 'nondominant,' making Comsat the last telecommunications carrier in that category, the spokeswoman said.

[09] Blue Circle earnings climb 13%, in line with expectations

Blue Circle's Chief Executive, Keith Orrell-Jones, said he expects the improvement in the heating division to continue, with 'steady progress' in heavy building materials, helped by the purchase of St Marys Cement in Canada. Orrell-Jones said that this acquisition is expected to increase Blue Circle's earnings per share in 1997.

The group snapped up St Marys Cement, a privately owned cement and building materials company from Ontario, Canada, for �164 million. St Marys Cement had net assets of �127 million in 1996, when it made a pretax profit of �22 million on revenues of �183 million, Blue Circle said.

In another development, Chief Executive Keith Orrell-Jones said in a written statement Blue Circle has successfully completed the first phase of the major restructuring program in its heating division. The operating profit in that business rose 105% to �35 million in 1996.

The group also annouced that it's on the lookout for further acquisition opportunities, according to its Finance Director James Loudon. ''We are looking to expand at the heavy end in several areas,'' said Loudon, adding that the company doesn't have any imminent purchases in mind.

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

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