European Business News (EBN), 96-12-19

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

Page last updatedDecember 19 1700 CET

CONTENTS

[01] Elf Aquitaine seeks a merger partner for its Sanofi unit

[02] Bundesbank lowers its monetary target range

[03] Rhone-Poulenc, Merck will merge animal health businesses

[04] British M4 money-supply growth surges, adding pressure for a rate boost

[05] France risks failing Monetary Union targets

[06] Hoechst to separate all its units

[07] Allianz predicts earnings rise for 1996

[08] De Beers threatens to cancel diamond deal with Russia

[01] Elf Aquitaine seeks a merger partner for its Sanofi unit

Elf, which holds 55% of Saniofi, said it wouldn't insist on keeping its majority stake. But it added that it would remain an 'important shareholder' in the health and beauty products firm.

The French oil company said 'It would be desirable for Sanofi to move nearer other pharmaceutical laboratories, through a merger, in order to speed up its development and increase its profitability.'

It said the decision to seek a merger was taken at a board meeting where the group's long-term development plans were on the agenda.

Just last month, Elf ruled out a merger for Sanofi, such as an often rumoured link with Rhone-Poulenc's drug unit Rhone-Poulenc Rorer. At the time Elf said it wanted Sanofi to grow through alliances.

Analysts said Rhone-Poulenc's U.S.-quoted subsidiary was still one of the favourite candidates for a Sanofi tie-up.

But Rhone Poulenc managing director Igor Landau said today that his company wasn't interested in acquiring a pharmaceutical group.

'In pharmaceuticals, we are the seventh largest in the world and we are very strong in six major areas,' Landau said at a news conference. 'We are not interested in an alliance or an acquisition,' he added.

Landau said the company's priority was to launch new anti-cancer drugs, vaccinations and other products. 'We have more than enough on our hands,' he said.

An Elf spokesman said the company had not yet started talks with anyone over a Sanofi merger.

The company made a first-half 1996 net profit of 616 million francs ($117 million), up 11% from the year earlier.

[02] Bundesbank lowers its monetary target range

Analysts had been divided over whether the central bank would leave the corridor unchanged at between 4% and 7%. The 1998 corridor will be set at the end of 1997, the Bundesbank said.

The Bundesbank said the choice of a two-year central target reflects the continued volatility in money supply developments and the need to make monetary policy decisions within the context of the planned Jan. 1, 1999 currency union.

The Bundesbank argues that M3, which comprises cash in circulation, time, sight and short-term savings deposits, is the best guide to future inflation and so to interest rate policy needs.

The bank traditionally sets a one-year target for growth in M3 money supply in the following year but some economists had predicted the bank would break with tradition this year, setting a two-year target.

That would allow the central bank to bridge the period to the end of 1998, when the European central bank will take over responsibility for monetary policy in Europe, the economists had said.

The Bundesbank traditionally arrives at its M3 target by looking at likely developments in economic growth and inflation, making adjustments for changes in the speed with which funds are changing hands in the economy, and then placing a corridor around its central estimate of M3 growth needs.

[03] Rhone-Poulenc, Merck will merge animal health businesses

The new company, to be called Merial, will be a 50-50 joint venture with combined sales this year of approximately $1.7 billion.

Rhone-Poulenc's Rhone Merieux unit and Merck AgVet together have animal health revenues this year of $1.4 billion, and poultry-genetics revenue of $300 million, the companies said in a statement. Rhone Merieux and Agvet held fourth- and second-place market rankings, respectively.

The statement didn't say whether cash would be involved in the transaction. Executives weren't immediately available for comment before a press conference in Paris.

In a statement, Merck Chief Executive Raymond Gilmartin said: ''Merial will have many of the strategic advantages critical for success in a market characterized by increasing competition and consolidation. Merck and Rhone- Poulenc's animal health businesses are fully complementary.''

[04] British M4 money-supply growth surges, adding pressure for a rate boost

Economists said the data, which came the day after news of the biggest fall in unemployment in November on record and buoyant retail sales, mean that Clarke will almost certainly bow to pressure from Bank of England Governor Eddie George for higher base lending rates at their next regular monthly monetary-policy discussion on Jan. 15.

The Bank of England reported that year-on-year growth in M4 - the broadest measure of money supply, consisting of bank deposits, bank lending and private-sector holdings of notes and coins - rose to 10.8% in November from a revised 10.5% in October. The year-on-year October rise was initially estimated at 10.3%. Between October and November, M4 growth rose 1.1%.

The annual rate of increase was faster than the 10% economists were expecting and took M4 growth further above the government's monitoring range of 3% to 9%.

The figures were boosted by a strong contribution from the public sector, which, in the absence of a government-bond auction in November, was forced to borrow heavily from the banking sector to help pay for almost 5 billion pounds ($8.37 billion) of gilt redemptions.

'If alarm bells are not already ringing at the Bank of England and the Treasury, then there is something seriously wrong with their early warning systems,' said Kevin Gardiner, U.K. economist at Morgan Stanley International in London. 'These figures point as clearly as could be to the need for a further tightening in monetary policy.'

Jonathan Loynes, U.K. economist at HSBC James Capel in London, said the central bank 'is still going to be pressing for higher rates.'

[05] France risks failing Monetary Union targets

The Paris-based thinktank said it expects France's general government deficit to equal 3.2% of GDP in 1997, compared with the government's projection of a 3.0% deficit. It said the difference between the estimates is due to its assumption of 'a stronger rise in health spending than the official target.' However, it added that any budget overshoot could be dealt with later in 1997.

In contrast, the OECD forecast that German budget defecits could be in line with European Monetary Union requirements in 1997. But the organisation added that this would only occur if Germany's Parliament approves intended budget cuts and if monetary policy is 'sufficiently supportive' of economic growth. Even then, 'with little margin of safety, there is still a risk that the 1997 budget target might not be achieved.'

Without those budget cuts, the deficit should be around 3.4% of GDP in 1997 and 2.6% in 1998. In 1996, it is expected to be around 4.1% of GDP. Those figures include only those budget measures that have been approved by the government so far. They exclude intended but not yet enacted measures.

Meanwhile Spain's moderate economic recovery means it is likely to meet its 3% inflation objective and approach its deficit goal of 3% of gross domestic product in 1997 as long as wage demands are held in check, said the organization.

'Prospects for a strong recovery will depend importantly on continued wage moderation, which would facilitate the easing of monetary policy and support employment growth, which is necessary to boost consumer confidence, ' it said.

However, Spain's legions of unemployed are unlikely to find much solace in the report, which forecasts that Spanish unemployment will remain above 20% in 1998 despite falling from a forecast 22.7% in 1996. The outlook mirrors France's most serious social and economic problem, where unemployment is not expected to improve until 1998. And even then, joblessness is projected to remain high.

Separately , the OECD warned that 'a change in expectations about the timing of EMU could have unpredictable confidence and financial-market effects' in Germany.

Meanwhile, Germany's federal budget deficit should be around 73 billion Deutsche marks in 1996, overshooting the government's target of 60 billion marks.

Finance Minister Theo Waigel said in September he would do his best to keep the deficit under 70 billion marks, but economic institutes have forecast that the figure will be closer to 75 billion marks.

[06] Hoechst to separate all its units

Hoechst said its real-estate holdings would be transferred to its individual units, but emphasised that all units would be managed by one administrative centre to be retained under the full ownership of Hoechst AG.

The separate units will bear the name InfraServ GmbH & Co KG with the site's name added on. For example, the group's main plant in Hoechst, a suburb of Frankfurt will be known as InfraServ GmbH & Co Hoechst KG.

The move continues the company's plans, announced in principle in November, to turn itself into a strategic management holding company and to improve shareholder value.

`As part of the overall concept, the German businesses will be turned into individual companies in the form of a company with limited liability, a GmbH & Co. KG,' said Hoechst.

Hoechst board member Ernst Schadow claimed the move would ensure the financial autonomy of the separate units, while allowing safety and environmental standards to be coordinated centrally.

The company, widely regarded as Germany's most successful group in the push for boosting the value of shareholders, also announced plans to list Hoechst shares on the New York stock exchange next year.

[07] Allianz predicts earnings rise for 1996

However, Europe's largest insurer warned that the pretax profit rise wouldn't match the 33% gain of the year earlier, when the company benefitted from tax relief related to its takeover of east German insurer Deutsche Versicherungs.

The improved nine-month earnings resulted from a systematic risk selection and favourable claims experience in many markets, together with the absence of major natural catastrophes.

Personnel and administrative expenses had also been curbed by improved working procedures and cost control measures.

'All things considered, the underwriting result will be higher than last year's figure. Non-underwriting business has benefited from the benign climate on capital markets, making it possible to realise increased gains and investment income has risen,' Allianz said.

However lower interest rates have reduced the return on new investment, the statement addded.

Regarding premium income, Allianz said the strengthening of major foreign currencies this year had added 1.4 billion marks to its earnings in the first nine months while changes in its group structure had cut earnings by 200 million marks.

Allianz this year consolidated its Swiss Berner insurance group and credit insurer Hermes Kreditversicherungs while its health insurance unit Deutsche Krankenversicherungs left the group on July 31.

Without these changes in currencies and structure, group premium income would have risen 5.3%, Allianz said.

[08] De Beers threatens to cancel diamond deal with Russia

In a rare public outburst of frustration, De Beers' Central Selling Organisation declared it will cease to buy Russian rough diamonds from the central government unless Moscow ratifies a new trade agreement by the end of the month.

If the Russian government refuses, it could see the diamond-producing provinces rush to sell their gems to the SO in an effort to capture precious foreign exchange that flowed to Moscow in previous years.

Gary Ralph, managing director of the London-based CSO, told a Johannesburg briefing of analysts and media via satellite that the Russian government had shown a ''very cynical disregard'' for the conditions of the existing supply contract with the CSO while negotiations took place to draft a new trade agreement.

Initial agreement on this contract was reached in February and the details were thrashed out between the CSO and state-owned diamond producer AK Almazy Rossii-Sakha until the finished pact was ready for signing at the end of September. But the signatures of the responsible Russian officials never came.

Ralfe said that, since reaching agreement with ARS in September, the resulting trade pact ''has been lost in the bureaucratic and political process of Russia.''

The CSO chief said it appeared the Russians were ''stalling'' on approval of the trade agreement while the CSO continued to honour its pledge under the old contract of only buying Russian diamonds from the central government.

''You can imagine that part of the interest of this release is tactical, to make sure we get the attention of the authorities in Russia,'' he said.

With more than three-quarters of Russia's $1.30-billion diamond export trade now under threat of being handed to provincial governments, analysts believe De Beers' will be successful in dragging Russian ministers back to the negotiating table.

The Russian government, through a Finance Ministry spokesman, labelled De Beers' warning as 'inappropriate' but added that it remained committed to finalising a sales agreement with the CSO, Russia's Prime Tass news agency reported late Wednesday.

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

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