European Business News (EBN), 97-01-23

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

Page last updated January 23 1430 CET

CONTENTS

[01] Daimler board clears huge restructuring plan

[02] German money-supply data damps rate cut hopes

[03] Sega, Bandai to form $5 billion multimedia giant

[04] Mannesman says DBKom to invest $487 million this year

[05] Allianz takes full control of its French subsidiary

[06] France takes more conciliatory stance on Foncier

[07] German compromise would cut taxes a net $18 million

[08] British Chambers of Commerce reports mixed fortunes for British industries

[09] Japan trade surplus shows unexpectedly sharp decline

[10] VW and GM plan to build cars in Russia

[11] Anglo American shows 9% rise in gold-mine earnings

[01] Daimler board clears huge restructuring plan

The restructuring is aimed at cutting costs and boosting the industrial giant's international competitiveness.

Daimler's other two main units, Daimler-Benz Aerospace and Debis, will remain fully separate legal entities.

'The new structure is a milestone in the drive to increase the company's earnings potential and will provide a flexible framework for the further evolution of our business portfolio,' Daimler chairman Juergen Schrempp said.

As part of the restructuring, Mercedes will be represented by three executives on Daimler's management board, increasing the board's overall size to 10 from seven. The new structure will take effect April 1.

The three executives are Juergen Hubbert, who will take over duties for Mercedes cars, Kurt Lauk, head of Mercedes commercial vehicle operations and Dieter Zetsche, who will take over a board position for sales and marketing.

Daimler did not indicate specifically how much money the overhaul would save, saying only: 'The board of management expects it will result in significant group wide cost savings.'

Although DASA and financial services and information technology company Debis will remain independent, the size of their head offices will be reduced.

At DASA, the individual management structures for Aircraft, Space Systems and Defence units will be eliminated, Daimler said.

The industrial giant first published details of the reorganisation last week, announcing most significantly that Mercedes-Benz boss Helmut Werner saw no room for himself in the overhauled group structure and was resigning.

[02] German money-supply data damps rate cut hopes

But some analysts say a rate cut could still emerge in the coming months.

The central bank said its broad M3 money supply grew at an annual rate of 7.9% in December, much faster than the expected 7.6% rate. As a result, the annualized rate of M3 growth in the six months through December accelerated to 5.9% from 5.5% in the six months through November.

And the data confirmed that money supply growth overshot the 4%-7% range the Bundesbank had targeted.

During the second half of the year, bank lending to corporations and individuals rose an annualized 7.7%, compared to 5.8% through November. Long-term savings growth, or monetary capital formation, grew at an annualized rate of 4.9%, down from a rate of 5.2% in the six months through November.

The central bank pointed to both higher bank-lending to the private sector and weaker savings growth as contributing to the development. Some analysts said a major factor in rising bank loans was the expiration of housing subsidies in the eastern half of the country.

The dollar dipped slightly against the Deutsche mark after the data was released, and bunds eased.

M3 consists of cash in circulation, sight deposits, time deposits with a maturity of up to four years and most kinds of savings. It is the Bundesbank's favoured leading indicator of inflationary trends.

Economists said the main significance of the figure was that continued high growth in M3 in the final month of 1996 meant that the base for this year's target was high.

This meant that, due to statistical effects, M3 growth was likely to look very weak in the early months of 1997, they said. Some believed that these lower growth figures could provide the Bundesbank with an excuse to cut interest rates in coming months.

[03] Sega, Bandai to form $5 billion multimedia giant

The alliance will create a 'comprehensive entertainment company on a global scale,' with annual sales exceeding 600 billion yen ($5 billion), the companies said.

Industry analysts said the merger between the two Japanese companies would strengthen Sega's effort to stay in the hardware business, where margins have been under pressure, while Bandai would be able to pursue more opportunities in multimedia.

The merger could also mean tougher competition in the global video game market for the industry's other leaders, Nintendo and Sony.

'The merger will allow a new stage of growth for the companies,' said Yoshinori Tanahashi, an analyst at Nomura Research Institute, an affiliate of Nomura Securities.

Reiner Dobbelmann, analyst at SBC Warburg (Japan), said the two companies could gain synergies. For example, Sega could expand sales of its Saturn game machine to younger people through Bandai's distribution channels.

The companies said 0.76 Sega share would be exchanged for 1 Bandai share. Yutaka Sugiyama, director of research at UBS Securities, said that based on these figures, arbitrage traders could be expected to bid up Bandai shares and sell Sega in the Tokyo market on Friday.

Sugiyama and other analysts said the benefits remained unclear, as the companies didn't release details of their business plan, and until they did, the longer-term direction of their shares would remain murky.

The merger announcement followed earnings shocks related to some key products at both Sega and Bandai. Last month, Sega slashed its group net profit forecast for the year to March 31 to 5.3 billion yen from its previous projection of 10 billion yen, citing a writedown of older 16-bit machines at its battered Sega of America Inc. subsidiary.

In addition, Sega's 32-bit Saturn performed only modestly in the U.S. during the last Christmas sales season, struggling against Nintendo's more powerful 64-bit game machine and Sony's Playstation, analysts said.

This month, Bandai reversed its group earnings forecast for the year ending March 31 to a pretax loss of 2 billion yen from a profit of 22 billion yen. It cited slack demand for its 'Pippin Atmark' multimedia set-top box, developed with Apple Computer Inc., and slower-than-expected overseas sales of its well-known 'Power Ranger' figure toys.

'This isn't a merger of two weak companies,' a senior Sega executive told a news conference. But analysts said the merger would certainly provide some welcome opportunities to the companies.

'As a toy maker, Bandai sells many of its products to people under 15 years old, while the Saturn appeals to older players...It looks like a way to bolster Saturn's position,' said Dobbelmann.

'As a whole, the new company can become the dominant company, from babies to people 20 to 25 years old, both girls and boys,' Sugiyama said.

However, the merger could backfire if it encourages Sega to remain committed to the Saturn and sales don't expand sufficiently, analysts said.

Sega is believed to have been losing money on the Saturn machine in some major markets, and many analysts have been hoping the company would actually withdraw from the hardware business to focus on software.

(James Paradise, AP-Dow Jones, Tokyo)

[04] Mannesman says DBKom to invest $487 million this year

The engineering company also confirmed that AT&T of the US and Unisource, a European group, will remain its partners in a consortium that holds a 49.8% stake in the telecoms venture, renamed Mannesmann Arcor. Deutsche Bank holds a 10% interest in the consortium.

Peter Mihatsch, a member of the Mannesmann management board and Mannesmann Arcor chairman, said Arcor aims to be Germany's second-largest telecommunications provider when the telecommunications market is liberalized next year.

State-owned Deutsche Telekom still has a monopoly on Germany's telecommunications market. Mihatsch also predicted that in the worst-case scenario, Arcor would 'at least break even within four years.'

He added that Arcor's 1997 turnover should exceed that of Arcor 1996, which totaled 'about DM900 million.' He added that the company expects sales of more than DM1 billion this year.

Deutsche Bahn, Germany's state-owned railway, said it will retain the controlling 50.2% stake in Arcor. But the Mannesmann consortium has the option of raising its stake to 74.9% in 1999, Arcor said. The Mannesmann partners received their holdings last July through an open bidding procedure.

[05] Allianz takes full control of its French subsidiary

The Munich-based insurer said it had agreed to buy out its one-time French partner Compagnie de Navigation Mixte's 34% stake in Allianz Via -- ending many years of legal strife between the co-owners.

'The agreement means that the French Allianz group will be in a position to adapt ... better and faster than before to the increasingly competitive conditions in a deregulated market,' Allianz said in a mandatory statement.

A spokesman added that the deal would give Allianz a 'new beginning' in France, where it has traditionally played a comparatively minor role, and would not rule out future acquisitions in the region.

The deal gives the German giant almost 100% of Allianz Via. CNM has also agreed to buy back the industrial holdings it controlled through Allianz Via.

CNM, which was taken over last year by financial holding company Cie Financiere de Paribas, has been a part-owner of Allianz Via since 1990 when it and Allianz merged their French insurance groups into a joint holding group.

Allianz Via, a life cover specialist whose premium volume is around 11 billion marks, finally swung to an operating profit in 1995 after spending years deeply in the red, but still posted an overall loss, according to Allianz.

Meanwhile Paribas said it would make a capital gain of some 700 million marks from the Allianz Via sale. The stake was valued on its books at 1.5 billion francs and would be sold for 2.2 billion.

[06] France takes more conciliatory stance on Foncier

Government spokesman Alain Lamassoure told RTL radio that mediator Philippe Rouvillois would contact unions at the occupied headquarters of Foncier to get talks going as the employees go into their seventh day of occupying Foncier's Paris headquarters.

He indicated that the government was open to new talks, saying that `if there is a formula other than the one on the table at the moment, we are fully open to negotiation.'

But he said that in the meantime, `and this is very important, the draft law that was prepared by the government to save the trade...and avoid all straight layoffs at Credit Foncier is being kept in waiting,' Lamassoure said.

Lamassoure kept up the government line that there was no hard-and-fast government plan but that the taxpayer would not be asked to foot the bill for a state cash injection and that there was only one offer open to it at the moment, a partial takeover by cooperatively run Credit Immobilier.

The legislation in question would set up a state holding company into which it would spin off the part of Credit Foncier not taken over by Credit Immobilier, with a view to winding it down over the coming years.

The unions yesterday released Foncier Chairman Jerome Meyssonnier and seven board members. The officials were being held to prevent the government from implementing its plans and to search for an alternative.

[07] German compromise would cut taxes a net $18 million

The package is expected to slash 81.9 billion marks in taxes but raise an extra 38.1 billion by broadening the tax base, according to a coalition paper.

The new tax code, which will be disclosed tonight, is expected to tighten rules on short-term gains from share and property sales while cutting company taxes for non-distributed profit and earnings.

Beginning in 1998, investors would be allowed to sell shares tax-free after holding them one year instead of six months, and property after 10 years instead of two.

The government is also expected to cut company tax to 28%. The tax on non- distributed profits would be cut to 40%.

The opposition Social Democrats criticised the plan, saying it imposed taxes on incomes that were too low to be taxed. The SPD also said middle- income earners would be taxed at the same rate as millionaires. The proposals are part of a broad overhaul of Germany's heavy-handed tax code that has strained Chancellor Helmut Kohl's centre-right coalition. After months of haggling between Kohl's Christian Democrats and junior partner Free Democrats, the group reached a compromise Wednesday night.

[08] British Chambers of Commerce reports mixed fortunes for British industries

While the strength of sterling has meant manufacturing growth stays unchanged in the fourth quarter from the third of last year, the service sector boom is leading to a shortage of recruits as it continues its expansion for the fifth consecutive quarter.

In its quarterly survey, the BCC drew attention to a slump in export demand and sales in the fourth quarter of 1996, warning that the strength of the pound is becoming 'a serious issue' for manufacturers. Furthermore, it added, there are serious worries over wage inflation as the service industry faces a recruitment squeeze not seen since the late 1980s.

The BCC said the service sector continues to prosper on the back of steadily improved domestic sales and orders, providing growing employment opportunities and encouraging more service firms to invest. This, it said, comes as a 'subdued' manufacturing sector saw domestic sales stalled, growth in export sales stalled and employment and investment deteriorated in the fourth quarter.

At a news conference following the survey's release, BCC Deputy Director- General Ian Peters urged Chancellor of the Exchequer Kenneth Clarke to keep the base lending rate on hold at 6.0%, and said there was no economic justification for higher rates before general elections, which must be held by May 22.

'Our view is that they (interest rates) are best left where they are,' Peters said.

He conceded that the Chancellor faced a 'balancing act' over rates, but said the BCC didn't want to see him 'blown off the wire.' Peters said that raising rates at this stage of the economic cycle risked 'snuffing out' the manufacturing recovery.

[09] Japan trade surplus shows unexpectedly sharp decline

The country's overall trade surplus declined 20.6% to 881.48 billion yen ($7.4 billion) in December, compared with a 1.110 trillion yen the year before. The decline was much steeper than the 6.5% drop to 1.038 trillion yen forecast by economists surveyed by AP-DJ World Equities Report.

Yasushi Okuda, economist at BZW Securities Japan Ltd., said the slower pace in export growth - to a 4.0% rise on the year in December after double- digit rises the last two months - could suggest that the weak yen isn't supporting Japanese consumer goods overseas as much as previously thought. ''My impression is that auto exports to the U.S. actually slowed down in December,'' Okuda said.

The weaker yen is partly responsible for a shifting pattern in Japan's sensitive trade balance with the US. Tokyo's trade surplus with Washington expanded by 7.8% to 389.11 billion yen in December, while the country's surplus with the countries of the European Union plunged 17.8% to 193.374 billion yen.

In theory, a weaker yen should boost Japanese exports, as it makes Japanese products more competitive in overseas markets and discourages domestic consumers from buying imports.

A Finance Ministry official said the trade surplus was still on a declining trend, as growth in imports continued to exceed that of exports. He said the rise in car exports would continue for a while and was a reaction to last year's low levels.

But Okuda sees a change in the trade pattern in a few months. ''We still think the narrowing trend (in Japan's surplus) will switch to an increasing trend by March or April, but the rate of expansion might not be very sharp, '' Okuda said.

[10] VW and GM plan to build cars in Russia

According to the Wall Street Journal Europe, VW's Czech subsidiary, Skoda Automobilova, confirmed that it signed an agreement with an unidentified industrial partner in Smolensk, to assemble Skoda cars from kits, starting this spring. The agreement was signed last year but not made public.

The plant's production would start small, probably only 'a few hundred' compact Skoda Felicias, but Skoda made no secret it hopes to repeat the success of a similar facility in Poznan, Poland. There, Skoda began producing Felicias from kits in 1993 and last year produced 16,000 of them. Milan Smutny, a Skoda spokesman, said the company expects to double Polish production this year as local content increases.

Analysts say Russia eventually will experience a boom in auto demand similar to those that transformed the automobile markets in Poland, Hungary and the Czech Republic. But so far, foreign auto makers have been reluctant to enter joint ventures with Russian auto makers, all of which have lost market share to imports of used cars in the past several years.

'Last year we sold almost 5,000 cars [in Russia] and couldn't meet demand,' he said. 'This year we're planning to sell 10,000, and our dealers tell us they could sell much more.'

GM, meanwhile, confirmed it is in talks with Finnish machinery and heavy- equipment maker Valmet, Russian auto maker AvtoVAZ and the All-Russia Automobile Alliance on the feasibility of building a version of a car made by GM's European operating unit, Adam Opel. AvtoVAZ would like to build the cars in its existing facilities, but GM is known to favor building a plant near the Finnish border.

Valmet's Valmet Automotive unit builds Saab convertibles in a joint venture with the Swedish company, Saab, and Opel Calibras for GM as well as Samaras for AvtoVAZ in Finland. The owners of the All-Russia Automobile Alliance are AvtoVAZ, car dealer LogoVAZ, the Samara region, the Russian Federal Property Foundation and individuals.

GM already builds Blazers in a joint venture with local partners in Yelabuga. GM said discussions with Valmet and AvtoVAZ involve production of 30,000 to 50,000 vehicles a year in a 'first stage in adapting Opel cars to the Russian market.'

Other auto makers that have recently expressed interest in building cars in Russia, alone or with partners, include Ford Motor Co. of the U.S., Bayerische Motoren Werke of Germany, Renault of France, Kia Motors of South Korea and Toyota Motor of Japan.

[11] Anglo American shows 9% rise in gold-mine earnings

But the world's largest gold producer cautioned that its biggest mine would see production fall this year.

Available profit from the company's five gold mines amounted to 340.8 million rand ($73.6 million) in the quarter.

Gold production rose 3% to 54 tonnes and the average gold price increased 2% to 55,756 rand per kilogram (2.2 lbs).

Available profit for the year to December 31 jumped more than two and a half times to 1.27 billion rand.

Anglo said it expected gold production at Free State Consolidated Gold Mines, the world's biggest gold mine, to fall 6.4% to 78 tonnes this year.

But other mines in its stable should produce more and the overall target for gold production in 1997 was 212.5 tonnes, one tonne less than in 1996.

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

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