European Business News (EBN), 96-10-15

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

Page last updated 0800 October 15 CET

CONTENTS

[01] Gehe says it will quit the drugs-making business

[02] United News makes $923 million offer for Blenheim

[03] Britain's water regulator moves up review of pricing structure

[04] Intel profit jumps 40%, powered by Pentium processors

[05] Roche Holding says nine-month sales rose 12%

[06] Murdoch says News Corp. is on track for 20% gain in full year earnings

[07] Enova and Pacific Enterprises agree to $5.2 billion merger

[01] Gehe says it will quit the drugs-making business

The company said it plans to sell four of its production units and expects to receive nearly 1.2 billion Deutsche marks ($784 million) for the businesses.

Gehe management board chairman Dieter Kaemmerer said the sale would free up resources to concentrate on expanding the group's global position as a leading drugs wholesaler. Similarly by spinning off almost all drugs production units, Gehe would remove any possible conflicts of interest in its wholesale business. The company is still battling U.K. group UniChem to take over Lloyds Chemists.

Gehe said its pharmaceuticals production division in total had accounted for some 450 million marks in 1995, some 3% of total group sales of 19.2 billion marks. At the same time, it earned pretax profits of 34 million marks, or 9% of total group pretax profits.

Gehe added that the divestment of its pharmaceuticals production division would also help remove the potential for conflict of interests in its wholesaling business. Gehe has a dominant position in the domestic drugs wholesaling business, and is thus a customer for rival producers of pharmaceuticals.

Gehe said it sold its Azupharma generic drug-making business to Sandoz for 640 million Deutsche marks. Azupharma, which employs 440 million people is Germany's largest generic drug maker and generated sales last year of 222 million marks.

Sandoz is merging with Ciba-Geigy into a new company called Novartis. At the time the merger was announced, Sandoz said Novartis plans to expand its position as a leading player in generics. At the time the merger was announced, Sandoz said Novartis would become the world's leading generic drug company.

In a separate deal, Gehe sold its French generic drug maker GNR-pharma to BASF's Knoll unit. Knoll said the purchase is another step in its efforts to expand its drugs unit. The other two Gehe drug-production units on the auction block are Aliud Pharma and Allphamed Arzneimittel, both based in Germany.

After the sales, Gehe will have only one exposure to drugs production, its 25.1% stake in Jenapharm. The remainder of that company is held by Berlin- based Schering, which bought its holding from Gehe in July.

[02] United News makes $923 million offer for Blenheim

The announcement follows a report that French utility Compagnie Generale des Eaux had provided United with an opportunity to buy its 15% stake in Blenheim.

The markets had been expecting Dutch publisher VNU to purchase another 10% of Blenheim today, following a dawn raid last week when it grabbed a 15% stake in the conference organiser. VNU had paid £5 a share for that holding.

But VNU has said it won't launch a counter bid. "'Given that United News and Media has since assured itself of more than half of the shares of Blenheim, VNU will not make a counter offer," VNU said

Market talk that United was close to securing a deal with Blenheim had gathered pace in recent days and the announcement ends months of speculation over who would actually buy Blenheim. United and Anglo-Dutch group Reed Elsevier had long been seen as rival suitors.

United's chief executive officer, Clive Hollick, said 'The combination will create an exciting range of opportunities for future growth. United's earnings are enhanced in the first full year.'

[03] Britain's water regulator moves up review of pricing structure

The announcement comes amid heavy criticism of the water industry by politicians. The U.K. Labour Party, for example, has taken to releasing regular diatribes against profits earned by some water company chiefs and says the 'fat-cat' salary and pension packages earned by some water company chiefs are unjustified amid what Labour says is declining service.

The Office of Water Services, or OFWAT, set current price limits at the water companies in 1994 for a 10-year period. Reviews must take place every 10 years but British licensing allows the regulator to conduct reviews after five years.

OFWAT said in a statement that 'a gap of 10 years between reviews is too long even given the long nature of the water industry.' Ian Byatt, director general of OFWAT, said he was looking to pass on the 'substantial efficiency savings' now seen at the water companies to customers.

'In the spirit of openness we are announcing the review now to remove speculation and regulatory uncertainty,' Byatt said.

[04] Intel profit jumps 40%, powered by Pentium processors

Net rose to $1.3 billion , or $1.48 a share, from $931 million the year before. Revenue gained 23% to $5.14 billion, the first time the company has ever surpassed the $5 billion mark in quarterly revenue. The chipmaker said its book-to-bill ratio exceeded 1.0 in the quarter as orders set a new record.

The earnings far outperformed Wall Street expectations, and Intel's stock price jumped 6% in after-hours trading in New York. Even Intel said the results were stronger than it expected.

The semiconductor maker said unit shipments of microprocessors and chipsets set new records during the latest quarter, and that it continued to receive high levels of orders for immediate delivery - or 'turns orders.' But the company noted that pricing pressures continued.

Intel wouldn't project future results, citing concerns about a California referendum that comes before the voters on November 5. Intel said the referendum issue 'significantly increase the exposure to frivolous stockholder lawsuits for all companies with a California presence'.

[05] Roche Holding says nine-month sales rose 12%

The company said it expected further sales gains in the fourth quarter and a rise in net income for the full year. Roche said it recorded 'steady growth' through the first nine months of 1996.

The pharmaceutical division posted 'healthy' sales gains, with 'growth continuing to outpace the industry average for the third quarter this year, ' Roche said. Sales in the division rose 12% to 7.64 billion Swiss francs.

Volume gains were posted for the division's flagship products. New products, such as CellCept and the AIDS drug Invirase were very well received, Roche said.

In the nine-month period, the division's over-the-counter business was marked by double-digit growth and gains in market share.

[06] Murdoch says News Corp. is on track for 20% gain in full year earnings

For the year ended June 30, News Corp. posted a 25% drop in net profit to A$1.02 billion (US1.28 billion).

He added that the first quarter of this fiscal year got off to a slow start, citing the Olympic Games. The rights to the Games were held by a rival network and took revenue away from Murdoch's Fox television network in the U.S. But he said News Corp. will be 'making up any shortfall' during the rest of the fiscal year.

He said results from Australian newspapers will be flat at best in the current year, but that he expects 'a very good year from our newspaper division in Britain,' partly because of lower newsprint prices. He added that the British satellite pay television service BSkyB is 'booming.'

Commenting on the company's finances, Murdoch said it now has $2.5 billion in the bank following a capital increase last week, and 'we intend to leave it there.' News Corp. wants to remain financially flexible to take advantage of 'new opportunities should they come along,' he said. Murdoch said he hopes to launch ASkyB, a direct broadcast satellite company owned jointly with MCI Communications, by November next year. 'If all goes according to plan, we will be in full launch mode this time next year,' he said.

Murdoch also announced that News Corp. plans to sell a 20% stake in its U.K.-based Digital Media Services unit within the next two to three weeks.

Digital Media Services would operate in Britain and Israel and produce technology for digital television.

[07] Enova and Pacific Enterprises agree to $5.2 billion merger

But besides offering cost savings, the planned offers the potential for growth, observers said.

To be sure, the combined gas and electric utility, worth about $5.2 billion, would realise some savings. Because the companies' service areas are contiguous - overlapping only with roughly 70,000 customers in Orange County - they expect to consolidate administrative and management positions and save $1.2 billion, before taxes, over 10 years. And savings are important. With deregulation set to jolt California's electricity industry at the start of 1998, the state will become a battleground of the low-cost provider.

But becoming bigger isn't the only goal. 'This is a little bit different that other gas/electric mergers,' said Prudential Securities analyst Barry Abramson, 'because there's usually an overlap.'

Enova, the parent company of San Diego Gas & Electric, serves 1.2 million customers. Pacific Enterprises of Los Angeles is the parent of Southern California Gas, the largest natural-gas utility in the U.S., serving 4.7 million customers.

A combined company provides the opportunity to market Enova's electricity to those customers who just get natural gas from Pacific Enterprises. 'Pacific Enterprises gives them the foothold in the new area of Los Angeles and north,' said Michael Barbis, an analyst at UBS Securities. Together, the companies will try to compete with the incumbent electric utility, the formidable Southern California Edison, a unit of Edison International.

The two companies will immediately begin a joint venture to get into third- party marketing of electricity and natural gas. Pacific Enterprises also brings some expertise in that business to the merger, Barbis said. 'It makes a lot of sense,' Barbis said of the merger. He said Pacific Enterprises would benefit by becoming part of a larger, stronger company. However, Barbis said the benefits to Enova are more obvious. In the stock- swap merger, each Pacific Enterprises share will be exchanged for 1.5038 shares of the new company; each Enova share will be exchanged for one share of the new company.

In a conference call, officials at the two companies said the combined entity - which doesn't have a name yet - would be roughly 52%-owned by Pacific Enterprises shareholders and 48%-owned by Enova shareholders.

(Loren Fox, AP-Dow Jones)

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