European Business News (EBN), 97-02-05

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

Page last updated February 5 1610 CET

CONTENTS

[01] Dean Witter and Morgan Stanley to merge into $21 billion financial services giant

[02] Italy reaffirms committment to be a charter member of EMU

[03] to trim management staff 10% in final phase of restructuring

[04] to distribute Internet software

[05] Dutch bank chief sees eight countries starting EMU

[06] EU proposes free sport on TV

[07] UK's Clarke insists foreign investors are satisfied with Britain's stand on EMU

[08] Santer suggests European Union could enlarge before 2000

[09] Intel's chief urges Europe to jump on the technological bandwagon

[10] The Great Divide in the Network Society

[11] Maintaining speed on the Information Superbahn

[01] Dean Witter and Morgan Stanley to merge into $21 billion financial services giant

The companies said their boards approved the stock-swap merger, which would create a financial services company with a market capitalisation of $21 billion.

The new company, to be called Morgan Stanley, Dean Witter, Discover & Co., will have about $270 billion in assets under management.

Dean Witter's chairman and chief executive, Philip Purcell, will be chairman and chief executive of the new company. Morgan Stanley's president, John Mack, will be president and chief operating officer.

Morgan Stanley's chairman, Richard Fisher, will be chairman of the executive committee of the new company's board. The board of the merged companies will have 14 members, with seven nominated by each firm.

The merger is seen closing in mid-1997.

The merger requires approval of both companies' shareholders. Dean Witter shareholders will hold about 55% of the new company's shares, with Morgan Stanley shareholders getting 45%.

The merger, intended to be a tax-free pooling of interests, is expected to be accretive to earnings per share for the new company.

In connection with the transaction, each company granted the other an option, exercisable under certain conditions, to acquire 19.9% of each other's outstanding shares.

The companies touted the merger as close to ''ideal,'' saying the firms have complimentary businesses and little overlap.

In the new company, Purcell will oversee Dean Witter's retail asset management and credit services. Morgan Stanley's Mack will oversee institutional and retail securities, investment banking and Morgan Stanley's asset management division.

[02] Italy reaffirms committment to be a charter member of EMU

Prodi's comments follow a report in the 'Financial Times' which suggested Italy would be offered delayed entry into EMU, which is scheduled to begin on Jan. 1, 1999.

German, Spanish, Portuguese and European Commission officials also denied that there was any plan to ask the Club Med countries to delay entry into EMU until 2000 or 2001.

The Italian premier said that the government is 'seriously determined' to continue to take the necessary steps to restore the state of state accounts to financial health.

In a statement, he added that the government 'deplores the inundation of false news and unjustified declarations, even from authoritative news sources, which have no foundation and do nothing but generate uncertainty among citizens and on financial markets.'

If a deal is struck to postpone Italy's entry, Prodi-who has staked his already shaky tenure on Italy's timely entry into EMU-will be expected to step down. That would resurrect an old lira bogeyman that some thought had disappeared for good: political uncertainty.

Many market observers said they weren't surprised by the report. They said the desire for a delay is a clear reflection of German objections - particularly by the Deutsche Bundesbank - to a watering down of the euro through the participation of Italy and the other Club Med countries.

The Bundesbank declined to comment on the report.

Banca Commerciale Italiana economist Luca Mezzuomo said, 'I'm not really surprised' that there might be a delay for Italy. 'I was afraid there might be a short term nasty reaction by the lira, but it appears to have been absorbed,' he said.

Some European Union monetary officials also pointed out that the idea of firming up the conditions for late entry into the single currency zone isn't novel. E.U. Commissioner Yves-Thibault de Silguy has mentioned this issue often when discussing management of relations between the euro and 'out' currencies after Jan. 1 1999.

And EU commission spokesman Patrick Child noted that the Maastricht Treaty makes no provisions for 'preselection' of countries that will participate in the single currency, nor does it provide for special arrangements on a given European Union country.

Child also stressed that the decision on which countries participate in the euro launch will be taken by EU leaders in early 1998, based on economic performance and evidence of economic convergence for the previous year. Italy reaffirms commitment to be among the first to join the planned single currency

[03] to trim management staff 10% in final phase of restructuring

That division will act as a profit centre with its own management board, the German carrier said.

Shares in the German national carrier surged almost six percent on the news, trading up 1.30 marks at 23.45 marks in early afternoon trade.

Lufthansa, which is scheduled to be fully privatised at the end of the year, said the latest revamping completes a restructuring begun in 1994. The new division will start operating April 1, when an open skies agreement goes into effect allowing airlines to compete for all routes in Europe.

The airline said in a statement it would be creating a wide-ranging passenger division under which sales, marketing, network management, flight and staff operations would be brought together.

The division's six-member management will report to the group board which will be free to concentrate on steering the airline as a whole, ensuring 'greater market proximity, flexibility and homegeneity of leadership,' the statement said.

The cost of the changes have already been budgeted for as part of the wider restructuring programme.

Analysts gave a cautious welcome to the changes but added the savings were likely to be relatively small and that Lufthansa's share could come under pressure when it publishes what will almost certainly be weaker earnings for 1996.

In addition, the threat of a strike by Lufthansa air and ground staff over a wage dispute continues to loom, with white-collar DAG conducting a strike ballot.

[04] to distribute Internet software

The agreement extends an already existing marketing and distribution pact with the leading Internet software company that the two firms reached in 1995 when Telekom began distributing Netscape 'browsers' over its commercial online service.

'Through the cooperation with Netscape we are expanding the spectrum of our offering in the area of the Internet and intranets and ensure that all our business customers receive solutions tailored to their needs,' said Herbert May, Deutsche Telekom board member in charge of enterprise customers.

Deutsche Telekom already gives Netscape's Navigator 'browser' to the subscribers of its commercial online service T-Online. Now it will also offer products such as the new 4.0 version of Navigator, Netscape SuiteSpot server and all products for local area networks (LAN).

Large businesses will be able to use the Netscape technology for Internet commerce and so-called extranet services, which link a company's suppliers and customers to its own intranet, an internal communications network based on Internet technology.

[05] Dutch bank chief sees eight countries starting EMU

Duisenberg was asked in the interview, published in the business newspaper Finanz und Wirtschaft, if the first round would include the three Benelux countries, Germany, France, Finland, Austria and Ireland.

Duisenberg stressed that it was essential for Germany and France to be in the first group.

The single European currency will be called the Euro and is slated to begin on January 1, 1999. Duisenberg said the remaining countries have made great efforts to fulfill the criteria for entry. 'Whether they make it on time is still open,' he said. 'But it is also no catastrophe if a few countries join the Euro zone somewhat later.' He expressed hope these nations could join in 2002.

Duisenberg saw no need for currency union to be delayed. 'In respect to a delay, I have the impression that many people speak of that very frivolously. Postponement to some time after Jan. 1, 1999, would mean that the Maastricht Treaty would have to be renegotiated.'

He viewed any delay as 'politically nearly ruled out.' He said the spirit that launched the Maatstrict Treaty is no longer present. If the treaty were to be redone, each country would think up new demands and a new round of ratification in 15 parliaments would be necessary, he said.

Duisenberg said the Dublin pact on stabilization, while a compromise, nevertheless upheld the requirement for E.U. countries to strive for budgets that are nearly balanced or in surplus. 'No one is speaking anymore of deficits,' he said. And he noted that sanctions face any country whose budget deficit goes over 3%.

[06] EU proposes free sport on TV

A Commission official said the proposals will require subscription broadcasters holding rights to a select few sporting events to transmit them free of charge. Member governments can decide which sporting events fit that bill.

Following carefree decades when state broadcasters in the EU would provide endless transmission of World Cups and Olympics, privatization and technological advances now threaten to end that free-for-all.

'The public has a right of (televised) access to major sporting events, which should be theirs to enjoy,' said Jim Janssen van Raay, a member of the European Parliament, which has come out strongly in favor for such measures.

Those would obviously include the summer and winter Olympics and the two major soccer events - the World Cup and European Championships. The Commission argues that such requirement would not necessarily undercut the profits of pay-television broadcasters since opening up those events to a much wider public would allow them to draw more advertising revenue. Wednesday's proposals of the EU's executive Commission will be put to the 15 member nations and the European Parliament for debate before a final decision is expected later in the year.

For long state broadcasters, joined in the European Broadcasting Union, enjoyed a quasi monopoly on television rights and obtained major events for what now seem very low prices. But with the advent of commercial broadcasting, sporting federations dramatically drove up the price for television rights.

Subscription channels steadily gained a bigger share, denying the public ever more free sports on television.

Last year, the EBU lost the rights to the World Cup, with Germany's Kirch group and a Swiss company winning the bidding battle for the 2002 and 2006 editions with an offer of dlrs 2.24 billion. The FIFA world soccer organization has said it will insist on free transmission of the games.

[07] UK's Clarke insists foreign investors are satisfied with Britain's stand on EMU

Clarke told European Business News television at the World Economic Forum in Davos, Switzerland, that foreign investors he has spoken with were reassured by Britain's cautious ''wait-and-see'' policy.

''The real thing that would worry them,'' Clarke said, ''is if we were apparently moving into some isolation ... from the European Union as a whole. I hope there is no serious politician in the U.K. advocating that.''

Clarke said inward investment is ''essential to our prosperity.'' He said investors ''come to the U.K. to enter the European markets. If we weren't in the single market, we wouldn't get any of this investment.''

Meanwhile, financier George Soros told London's Daily Telegraph that a UK decision to stay out of a single European currency permanently would be ''very damaging.''

According to the Telegraph, Soros said that a lot of foreign money has been invested in the U.K. as a suitable ''entry point'' into other European markets.

''As a permanent outsider in the single currency project, Britain's position in the single market would come under question,'' he said.

However, Soros said there is ''no rush'' for Britain to join economic and monetary union, set to start in 1999. He acknowledged in the newspaper article that the decision would be difficult ''because the British economy dances to a somewhat different tune.''

[08] Santer suggests European Union could enlarge before 2000

Santer sought to negate a commission paper accidentally made public last week which suggested that enlargement shouldn't take place before 2001.

'My mandate ends Jan. 6, 2000, and I would be very glad if a country joined by then, for my own gratification,' Santer said at the World Economic Forum in Davos, Switzerland.

Santer noted that an evaluation of the 11 applications to join the 15- member E.U. would begin some six months after the end of the intergovernmental conference, slated to end this June. The IGC is meant to alter E.U. institutions, including vote allocations, in order to prepare for enlargement.

After the commission evaluates the applications, the E.U. council of ministers can then negotiate the entry of a new member. 'It's up to the negotiations and whether (they) end by 2000, before or after,' Santer said.

Separately, Jacques Santer, president of the European Union Commission, reaffirmed that countries must strictly meet the Maastricht criteria before joining EMU.

'There will be no flexibility in this respect,' he said during a press conference.

When pressed whether the 3% deficit target can be made flexible, given that the Maastricht treaty states only that countries must tend to be near 3% by 1997, Santer replied only: 'I think the language of the treaty is clear on the criteria.'

Santer also said there was nothing wrong with a French proposition for a 'stability council' of European Union finance ministers that would co- ordinate policies and hold discussions with the European Central Bank.

He warned, however, that 'the council can only have an informal role because nothing in the treaty calls for it.' Nevertheless, 'nothing forbids a dialogue between the ECB and a finance council.'

[09] Intel's chief urges Europe to jump on the technological bandwagon

Grove, in addressing the World Economic Forum in Davos, Switzerland, said that without new national efforts and incentives the region's current investments will not be enough to keep it competitive.

The result, said Grove, could 'leave future generations of Europeans with a technology deficit,' according to an account of the speech given earlier today.

The address is particularly timely, and represents the first time Grove has given Europe such a dire warning, said an Intel spokesman. Though computer use in Europe has always lagged that in the U.S., increasingly American companies have pointed to Europe as sour spots in otherwise more robust sales.

Companies such as Computer Associates International Inc., and Digital Equipment Corp. are among those to single out Europe. But microprocessor- maker Intel is not without a tale of its own to tell.

In the past year, Europe's percentage of the company's revenue fell to 28% from 29%, according to fourth-quarter figures, while the emerging economies of Pacific Asia grew to 20% from 12%.

Grove also pointed out that the widespread use of the Internet represents a point of fundamental change in the technology industry and an opportunity for business.

[10] The Great Divide in the Network Society

[11] Maintaining speed on the Information Superbahn

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

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