European Business News (EBN), 96-11-25

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

Page last updated November 25 1800 CET

CONTENTS

[01] Lira returns to ERM after 4 -year absence

[02] Uk's Clarke supports parliamentary debate on EMU issues

[03] KLM and Dutch government confirm sale talks

[04] Volkswagen may be seeking to settle industrial espionage suit by GM

[05] Skandia and Stadshypotek propose merger

[06] Salvesen plans to demerge rental unit and pay special dividend

[07] APEC leaders call for freer trade and investment by 2000

[01] Lira returns to ERM after 4 -year absence

But a party for the prodigal son it was not, as negotiations got so difficult that European Union finance ministers and central bank heads had to be called in Sunday to break a deadlock in talks that began Saturday.

Nevertheless, a parity deal was struck at 990.00 lire to the Deutsche mark.

The new level is thought to be sustainable for the Italian economy - if perhaps a little lower than expected - and the expected lira rise might even allow the Bank of Italy to deliver an expected discount rate cut as soon as this week, analysts said.

The agreed parity level might pose a bit more of a problem than previously expected for Italian exporters, but the 1,000 lire level that many were expecting to be parity still undervalues the lira, said Lorenzo Codogno, head of research for Bank of America in Milan.

Italy's prodigious export lobby will complain, but the level is 'sustainable,' said Giorgio Radaelli, senior economist at Lehman Brothers in London.

Italy's industrialists would have probably accepted 1,010 lire to 1,020 lire without problems, but the agreed level has already drawn fire from Italian ex-prime minister and businessman Silvio Berlusconi. Sunday, Berlusconi said the level 'isn't a favourable one.'

Lehman's Radaelli - who is sceptical about Italy's being allowed to join in the first round of European monetary union in 1999 - said the return of the lira to ERM will help the bond market, as it will buttress the view that Italy will join EMU and benefit from convergence on rates.

Certainly Italy's prime minister Romano Prodi lost no time Sunday calling the re-entry 'a very important result.' He added that it gives room for interest rates to drop and 'is a fundamental to our participation in EMU.'

Prodi has essentially staked his government on the promise to bring Italy into the first round of monetary union, planned for January, 1, 1999.

The lira's re-entry should have a strong symbolic value as well as boosting Italy's chances of qualifying. Two years of a stable currency inside the ERM is widely viewed as meeting one of the four key Maastricht Treaty criteria.

Others also see room for interests to come down rather quickly following the lira's return.

The new parity level should give the Bank of Italy room to cut rates by 0.50 percentage points, said Marco Pianelli, an economist at Nomura Research Institute in London.

The stronger the lira gets, the better chance there will be a rate cut, added Bank of America's Codogno.

Although analysts and the prime minister seem primed for a rate cut - perhaps as early as this week - Sunday evening at a press conference the Italian central bank governor, Antonio Fazio, tried to throw cold water on the idea.

Fazio was brief but to the point: the lira's re-entry 'will have no influence on the official discount rate.... which is decided on the basis of inflation and the progress made in that area,' he said.

The discount rate stands at 7.50% and was last cut in October, following an easing in inflation, which is currently running at about 2.6% to 2.7%.

[02] Uk's Clarke supports parliamentary debate on EMU issues

Clarke, in an unusual address to parliament, said 'I'm strongly in favor of full parliamentary debate of these issues.' Clarke added, however, that debate over EMU issues including the planned stability pact, shouldn't be based on the rumors and ''innuendo'' of recent days.

Last week, British Euroskeptics accused the government of trying to bury the details of a the stability pact being negotiated in Brussels for those countries that join the single currency.

Instead of just having the pact discussed in a House of Commons standing committee, they demanded a full debate in the House.

British Prime Minister John Major initially rejected appeals to move the debate out of committee. By the weekend, though, as members of parliament continued to threaten to vote against the government, the prime minister announced that his chancellor would make a statement, just one day before announcing the government's 1997-98 budget proposals, in the House to convince the Euroskeptics.

Earlier Monday, Foreign Secretary Malcolm Rifkind tried to calm the furor by insisting that Britain won't be bound by the stability pact on fiscal rigor once a full EMU comes into effect. ''We're not going to be bound, as the Chancellor has already pointed out,'' Rifkind said. Clarke, in his statement to the House, pointed out that Britain's option of not taking part in EMU was unaffected by the stability pact discussions and that unless Britain actually chooses to take part in monetary union, no penalties could be levied on the country for running excessive deficits.

[03] KLM and Dutch government confirm sale talks

The carrier and the government said talks were still in too early a stage to predict whether they would actually lead to a sale. A spokesman for KLM said the talks were 'purely orientational' and couldn't yet be construed as negotiations.

He declined to give further details of the talks, when they began, or how long they're expected to continue.

On Saturday, Dutch newspaper De Volkskrant reported the Dutch government is in talks with KLM on selling part of its 38.2% stake and said KLM may be planning to buy part of that stake itself. In recent weeks there has been persistent speculation that KLM may intend to buy its own shares.

If the Dutch government sells its stake, the Volkskrant said, it would be worth about 1.4 billion guilders ($828 million) at KLM's current price.

On the Amsterdam Stock Exchange, shares of KLM are trading 1.50 guilders, or 3.61%, higher at 43.10 guilders.

[04] Volkswagen may be seeking to settle industrial espionage suit by GM

According to the Wall Street Journal Europe, Klaus Liesen, chairman of the supervisory board of VW, has approached John Smale, chairman of the executive committee of GM's board, about reaching an out-of-court settlement in the legal battle centred on the 1993 defection of GM manager Jose Ignacio Lopez de Arriortua to VW, people close to the situation say.

VW supervisory board members fear damage to the company's image following pronouncements from Lopez's lawyers that they expect German prosecutors to indict him and several other former GM employees by the end of this year.

VW also faces the possibility of substantial financial damage in a civil suit brought by GM against the company and several of its employees and board members, including Lopez, this year in Detroit.

People close to the situation estimate the damages could amount to several billion dollars if GM wins the case.

A report in today's edition of the German newsweekly Der Spiegel said Lopez could be forced to resign as part of an out-of-court settlement.

Spokesmen for VW and GM declined to comment on reports of an out-of-court settlement. Liesen couldn't be reached for comment.

People familiar with the Lopez affair, however, said an out-of-court settlement probably wouldn't affect the proceedings of the Darmstadt, Germany, prosecutor's office or the U.S. grand jury investigation begun in 1993.

Both are independent investigations begun by each country's criminal- justice establishments.

The Darmstadt prosecutor's office has said it will reach a decision on how to proceed by the end of this year.

Lopez's lawyers recently said they expected him to be indicted. German prosecutors indict someone only if they think they can win their case.

Meanwhile, a Frankfurt appeals court last week overruled objections by Lopez and VW and agreed to give U.S. Justice Department officials virtually all the evidence collected by the Darmstadt prosecutor's office over the past three years.

A spokesman for the U.S. Department of Justice declined to comment for this story, but one of Lopez's lawyers said the evidence includes transcripts of some 200 interviews with VW and GM employees regarding GM's allegations of industrial espionage.

It also includes all the documents provided by lawyers for Lopez and VW, and a copy of a report commissioned by VW by consultants KPMG, Lopez's lawyer said.

Only excerpts of the report have been made public, and German media have reported that the full report is more damaging than the abbreviated version.

Any other parts of the U.S. Department of Justice's request for information that weren't objected to by VW will also be made available, according to people familiar with the case.

[05] Skandia and Stadshypotek propose merger

The proposal calls for a stock swap, and Stadshypotek said 11 of its shares would buy 10 shares in the new company.

A merger between Skandia and Stadshypotek would create the Nordic region's largest financial institution with assets of around 500 billion kronor ($75.3 billion) and net assets of 37.5 billion kronor.

Stadshypotek has a market capitalisation of around 24 billion kronor. The largest shareholder is the Swedish state with 34% of the shares. Voting restrictions in Skandia's articles of association are expected to be removed at an extraordinary shareholders' meeting of Skandia on December 19.

The announcement comes in the wake of a statement by Swedish Finance Minister Erik Asbrink that the state would sell its 34% Stadshypotek stake to an industrial buyer through a controlled auction. The finance ministry must approve the planned merger and both companies said the Swedish government had not been willing to discuss it.

The companies said the merger was expected to improve earnings per share in 1997, generate large cost savings and enhance returns through an expansion of international unit linked business.

The savings are expected primarily from the integration of SkandiaBanken and Stadshypotek Bank and merging branches and administration.

The total synergies are estimated at 800 million crowns in 1998 and 1.2 billion in 1999, of which more than half comprises cost savings. Restructuring costs of 500 million crowns over the next three years were forecast.

'We are convinced that the new company will increase value for money for shareholders in Skandia and Stadshypotek,' Skandia's chief executive Bjorn Wolrath said.

'We are creating a strong and competitive Nordic financial services company which has the capital base required to meet the challenges of restructuring within the Nordic finance sector demands,' he added.

The Swedish parliament on Friday adopted legislation requiring the Urban Mortgage Bank to transfer its shares in Stadshypotek to the Swedish state.

The legislation also allowed the government then to sell those shares at the highest possible price and potential buyers will have the opportunity to bid for all of the state's shares.

Skandia chairman Sven Soderberg said Skandia's offer was made in the firm belief that the state would carefully consider the proposal.

He said the government said the restrictions on the sale process as laid down by parliament were the reason the two companies had not been allowed to discuss the proposal with the major shareholder.

Soderberg said in a statement the merger would allow for rapid expansion of Assurance and Financial Services, Skandia's international life and financial services unit.

He said a 5.0 billion crown cash injection would be needed for AFS over the next five years.

'A merger as proposed creates a strong group with its core markets of savings, mortgages and insurance. The merger also creates good opportunities for a more rapid expansion of AFS.'

[06] Salvesen plans to demerge rental unit and pay special dividend

The moves came as the company posted a 15% rise in first-half pretax profit to £51.6 million. The 17 pence a share special dividend brings the total payout for the year to 20.8 pence a share from 3.5 pence a year ago.

Salvesen stressed its intention to enhance shareholder value through the special dividend and a foreign-income dividend, which will cost it about £150 million, and the decision to spin off the Aggreko power and temperature control rental business in the second half of 1997.

An attempted takeover by Hays in July and August spurred the company into action.

'I am confident that these proposals will greatly benefit shareholders and I believe the demerger will offer exciting opportunities for both companies, ' Chairman Alick Rankin said.

Aggreko operating profit surged 30% to £23.7 million in the half, due in large part to its U.S. operations, including the 1996 Olympic Games in Atlanta, to which it rented about 800 pieces of equipment over a 10-week period.

The Logistics group, which accounts for two-thirds of the group's total turnover, saw operating profit grow by 2.6% to £23.4 million.

It said margins in the food logistics and retail sector 'continue to come under pressure' and that heavy start-up costs continue to beset the automated picking systems installed in recent months to serve J. Sainsbury stores in Southeast England. Other heavy start-up costs related to new business in Europe also adversely affected profits, the company said. These included commissioning of automated warehouses in Belgium for United Biscuits and in the Netherlands for Friesche Vlag.

[07] APEC leaders call for freer trade and investment by 2000

The most important element in the final declaration is APEC's backing for the Information Technology Agreement, a plan aimed at a major reduction in tariffs on information technology goods by the year 2000, to be agreed at the World Trade Organisation ministerial meeting in Singapore next month.

In the 26-point document, the leaders emphasised that the Subic Bay summit has laid the groundwork for implementing the APEC development agenda tabled at last year's summit in Osaka, Japan.

The Osaka agenda broadly calls for trade and investment liberalisation by the year 2010 for developed countries and 2020 for developing nations. It also calls for trade and investment facilitation and economic and technological development.

In reviewing the Subic summit's accomplishments, the declaration says that APEC leaders have:

1. launched the implementation phase of plans to liberalise trade and investment;

2. delivered measures to facilitate business links in the region;

3. agreed to advance common goals in the World Trade Organization.

Pressed by U.S. President Clinton, Pacific Rim leaders on Monday accepted the year 2000 as a deadline for cutting tariffs on information technology.

The summit communiqué contained wording that was closer to the U.S. demand for a strong statement on freeing up the lucrative global trade in computers, semiconductors, software and telecommunications gear.

But it also spoke of 'flexibility,' to reassure poorer nations anxious to protect their high-tech industries from cheaper imports.

The summit called for 'the conclusion of an information technology agreement' by the World Trade Organization that would 'substantially eliminate tariffs by the year 2000,' but recognised 'the need for flexibility' in the WTO negotiations.

U.S. officials said Clinton warned Ramos that the summit of the 18 Asia- Pacific Economic Cooperation governments would be judged a failure unless the statement on tariffs was stronger.

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

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