European Business News (EBN), 97-02-18

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

Page last updated February 18 1730 CET

CONTENTS

[01] Ciba Specialty sets pricing for its spin-off from Novartis

[02] Deutsche Bank's net profit is hit by several charges

[03] Sparbanken and Foereningsbanken agree to $5.7 billion merger

[04] Deutsche Babcock may slash workforce by one-third, trims losses in first months of fiscal `97

[05] SmithKline earnings rise 14%, but hit lower end of expectations

[06] Barclay's results underscore the costs of restructuring BZW

[07] Usinor Sacilor earnings '96 plunge on weak prices and demand

[08] Bayerische Vereinsbank says operating profit rose 18%

[09] Corporate and Economic Briefs

[01] Ciba Specialty sets pricing for its spin-off from Novartis

Novartis said the spin-off will produce 'significant restructuring charges' of 1.08 billion Swiss francs ($728 million) for 1996 and between 250 million francs and 350 million francs($236 million) for 1997.

The spin-off entails a 1-to-1 rights issue to Novartis shareholders, as well as a rights bid and the global offer.

Under the spin-off plan, Ciba Specialty will assume 1 billion francs in net debt and have equity of 4 billion francs.

Ciba, which has been operating independently within Novartis since the beginning of the year, expects to report a slight gain in 1996 operating profit from the 499 million francs it earned in 1995 on sales of 6.5 billion francs.

Shares in Ciba Specialty Chemicals, which retains part of the name of the old Ciba-Geigy that merged last year with Sandoz to form Novartis, are expected to trade beginning March 13. They will be listed on the Swiss market and trade on the UK Seaq international exchange as well.

Under the rights issue, each Novartis share affords the owner the right to acquire one registered share of the new Ciba at a subscription price of 10 francs, which is the nominal value.

Credit Suisse and Union Bank of Switzerland lead a bank syndicate that will offer to buy rights from Novartis shareholders at a final rights bid price to be announced March 11. The price will equal or surpass a floor price to be announced Feb. 26.

Novartis shareholders have the options of exercising their rights by subscribing to shares at 10 francs, selling the rights at prevailing market prices, or selling the rights to the bank syndicate at the rights bid price.

In a second step, shares obtained through the rights bid are expected to be offered to new investors through a global issue. Novartis granted the syndicate an option for shares. A minimum of 300 million francs of shares are expected to make up the global offer. Allocation and pricing are set for March 13.

Ciba won't issue new shares for the global segment of the spin-off.

[02] Deutsche Bank's net profit is hit by several charges

The bank declined to describe the charges, which kept net profit to 2.2 billion marks, but market observers say the largest is almost certain to be one covering losses made at its London-based Morgan Grenfell Asset Management unit, which the bank estimated in December at around £200 million ($323 million). The charges represented the costs of compensating investors for alleged mismanagement at three unit trusts run by the London- based unit.

Analysts expected little direct impact on earnings because Deutsche was expected to have used some reserves to foot the bill.

However, Deutsche stressed that it was primarily its investment banking division that contributed to the 23% rise in total assets to 886 billion marks last year.

More than any other German bank, Deutsche has placed particular emphasis on developing its global investment banking business in recent years.

The net profit laggged earnings growth at Deutsche Bank's major domestic rivals, but the operating profit was above expectations.

Analysts had expected net profit would be stagnant or show only minor growth due to a series of blows to Deutsche Bank's earnings last year, including the Morgan Grenfell losses.

Deutsche Bank said its balance sheet total jumped 23% to 886 billion marks in 1996 due to increased trading activities as part of its expanding investment banking business.

[03] Sparbanken and Foereningsbanken agree to $5.7 billion merger

Sparbanken has offered three new shares for every seven class A shares in Foereningsbanken and one new share for every three preferential class B shares in Foereningsbanken.

The banks estimate the merger will create savings of about 1.5 billion kronor a year. They plan to trim their workforce by 15% to about 11,000.

Mandamus AB, Foereningsbanken's real estate subsidiary will be distributed to the merged bank's shareholders in the spring of 1998.

The banks said the main reason for the merger is the increased competition and the deregulation of the banking market combined with the planned introduction of a single European currency.

'It becomes more difficult to keep up with the costs related to the technical development,' said Bo Dockered, currently chairman of Foereningsbanken. 'Therefore, it is important to take the opportunity to carry out the necessary changes,' he added, noting that the good years are drawing toward an end and interest rates are levelling out.

Both Foereningsbanken and Sparbanken reported record results for 1996, which makes it possible to 'use an aggressive strategy to develop a competent, decentralised and nation-wide banking business with a high level of service,' the banks said in their presentation of the deal.

[04] Deutsche Babcock may slash workforce by one-third, trims losses in first months of fiscal `97

The programme is aimed at producing break-even results by fiscal 1998 under new chief executive Klaus Lederer.

'About half of the reductions will come from job cuts and the rest through the sale of subsidiaries,' Lederer said. He added that 'a great deal' of management jobs would be affected by restructuring. He did not give a timetable for the shedding of workers.

The troubled German engineering company also said it trimmed its losses in the first four months of fiscal 1997 by 100 million Deutsche marks ($59 million) from the year before. In the year-earlier period, the German machinery and engineering group posted a loss of 250 million marks. For all of fiscal 1996, Babcock swung to a loss of 434 million.

Babcock said it plans to trim its workforce by 8.5% to 28,500 this year and to cut an additional 500 jobs next year. Babcock's workforce totalled 32, 300 at the end of fiscal 1996.

Lederer replaced Heyo Schmiedeknecht, who resigned on Jan. 31 after a buying spree that dragged the company into the red and strained the company's credit lines.

Babcock said new orders and its order backlog were flat so far this year, while group sales in the October through January period rose 5.6% to 1.9 billion marks. However, the company noted that the start of the year is always weak in the plant construction sector, for billing-related reasons.

[05] SmithKline earnings rise 14%, but hit lower end of expectations

Pre-tax profit came in at £1.55 billion ($2.49 billion), at the lower end of analysts expectations of between £1.54 billion and £1.59 billion. Without the pound's recent strength, SmithKline's pre-tax profit would have been £1.58 billion, the company said.

Chief executive Jan Leschly said in an interview with Dow Jones that new drugs, or those that have been launched in the last five years, now account for 36% of total sales.

Leading the pack last year were SmithKline's Augmentin antibiotic and its Paxil/seroxat anti-depressant. Paxil, in particular, had strong sales, jumping 42% to more than £700 million.

Overall drug sales and operating profit were both up 14%, while profit margins stood at 24.8%.

'We have a hell of a flow of growth in our new products,' Leschly said.

The company now has five new compounds in Phase III, or late-stage, trials, he pointed out. Leschly predicted that another new product, a treatment for ovarian cancer called Hycamtin, will continue to grow dramatically.

''We believe (Hycamtin) will capture probably one-third of the total market for recurring ovarian cancer,'' Leschly said.

Hycamtin was launched in the UK earlier this month, and SmithKline now has approval to market the treatment in 15 other countries. The drug already received clearance from the US Food and Drug Administration in 1996.

But the FDA has yet to approve another important SmithKline product - Coreg, a treatment for heart failure. Coreg has been cleared for treatment of the condition - a loosely defined syndrome that is nonetheless fatal, killing 40,000 a year in the US alone - in countries such as Sweden, Spain and Israel.

The FDA's advisory committee votes a second time on Feb. 27 on whether to clear Coreg for the US market. It has looked at other trial results since first refusing approval for Coreg.

Leschly refused to speculate what the chances for clearance are this time out. ''It's been a roller-coaster - back and forth,'' he said of the FDA approval process.

While still pushing its new-product portfolio, SmithKline Beecham continues to try to cut costs, Leschly said. 'The cost reductions are really just starting,' he said.

Key among the planned cost savings for 1997 are more plant closures, Leschly said. SmithKline closed 12 plants in 1996. The 1997 closures will lead to further savings on the balance sheet 'in 1998 or '99,' he said, but he wouldn't give an exact estimate of how much savings to expect.

Acquisitions, on the other hand, aren't on the agenda.

Leschly repeated a company assertion that it's not looking at further purchases, though he added that all the past acquisitions 'have paid off.'

[06] Barclay's results underscore the costs of restructuring BZW

'The results have focused on the volatility of investment banking,' said Norrie Morrison, banking analyst at Nikko Europe. 'Some used to think it was a license to print money, but this shows what it's really like.'

Barclays reported pre-tax profit of £2.36 billion ($3.8 billion) for the year ended Dec. 31, 1996, a 13% increase over 1995. But without £70 million in exceptional gains, the rise was just 9.7% - far below analysts' forecasts of 15% profit growth.

Although overall costs at Barclays rose just 2% to £5.08 billion in 1996, costs at BZW alone rose 18% to £1.06 billion, helping to drag the division's profit 29% lower to £204 million.

'We're investing a lot, and we're expecting a lot,' said Barclays Chief Executive Martin Taylor. 'We're very confident about the business, but it's costing a lot of money.'

Taylor went on to warn that Barclays' investment in BZW isn't finished.

'I think I'm probably on safe ground when I say the second half of 1997 will be a lot better than the second half of (1996),' he said.

Taylor said the bulk of the 18% increase in costs at BZW occurred during the second half of 1996 as the division set about a management overhaul following the death of former Chief Executive David Band, the appointment of Bill Harrison as his replacement and other senior-level changes.

'Not all costs are bad and not all income is good,' Taylor said in defence of BZW's soaring expenses.

'We're building the firm around people,' added Harrison, who took over BZW in September. 'The principal wasn't to go out and buy a business, but rather to buy outstanding individuals who can be role models. It's an organic approach.'

Taylor told AP-Dow Jones News Services that in hindsight, he could have addressed problems at BZW earlier. But when he joined Barclays in January 1994, there were more pressing issues, Taylor said.

He added that BZW's costs were not a surprise to him, but appeared so to analysts.

Nikko's Morrison conceded that he'd underestimated costs at BZW. 'But on the side of Barclays, the effects were slightly exaggerated with the buying- in of people,' he said. 'And Taylor implied others were leaving as well, which is also expensive, so I suspect some of that pressure will ease by the second half of 1997.' (Alison Turner, AP-Dow Jones)

[07] Usinor Sacilor earnings '96 plunge on weak prices and demand

Net profit in 1996 plummeted to 1.49 billion francs ($260 million) from 4.43 billion francs the year before.

The result was slightly higher than the 1.2 billion francs analysts were expecting. Usinor slashed its dividend 25% to 3 francs a share.

The company said 'In these conditions, while volume is significantly higher, average prices, at least during the first semester, remain lower than those of 1996,' the company said.

Usinor Sacilor Chairman Francis Mer said that since late 1996 both prices and sales volumes had begun to rebound.

'After a first half which should remain somewhat weak as we work through the previous price drops, there's a good chance for a significant rebound in the second half,' he said.

'We will post better earnings in 1997 than in 1996,' he said. However, he noted that 1996's net profit was better than the company had expected a few months ago, so that the 1997 rise from a higher base may be slightly less than they had thought.

'Which is how expectations of a 'very significant' earnings rise may have turned into a just plain 'significant' rise,' Mer joked. Analyst predictions for 1997 earnings range from 1.8 billion francs to 2.5 billion francs.

Turning to the cut in the company's dividend, Mer said, 'We thought it neither normal nor reasonable to maintain the dividend unchanged when earnings were three times lower, but neither did we divide the dividend in three.'

Mer also reaffirmed Usinor's interest in a partnership with Spanish steel company CSI.

'We feel a partnership between us makes sense,' Mer said. But he noted that the Spanish government has yet to decide when and how it will privatise CSI.

[08] Bayerische Vereinsbank says operating profit rose 18%

Bayerische also said its business had gone better than planned at the start of the year.

Management Board Chairman Albert Schmidt told reporters the bank's operating profits would show another significant increase this year, although he didn't provide any specific goal.

The German commercial bank also raised its dividend 6.6% to 1.60 marks a share.

The bank also disclosed for the first time some 595 million marks of hitherto 'hidden' reserves, which it will now book as a 'fund for general banking risks' and which will count toward the bank's core capital.

The rise in operating profit was due to a large extent to an increase in its commission income, which rose 13% to 1.2 billion marks. Vereinsbank's traditional lending business contributed around 4.8 billion marks to the operating result, nearly 500 million marks more than in 1995. However, interest income failed to keep pace with the volume of lending business, which rose 11% to around 312 billion marks.

[09] Corporate and Economic Briefs

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

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