European Business News (EBN), 97-03-21

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

Page last updated March 21 1640 CET

CONTENTS

[01] B.A.T calls Liggett settlement ploy to prompt take-over bid

[02] Airbus says it's appalled at Delta/Boeing sole-supplier agreement

[03] Rexrodt says Krupp, Thyssen steel deal is inevitable

[04] The U.K.'s Tesco group to become market leader in Ireland

[05] UK Government OK's takeover of Yorkshire Electricity

[01] B.A.T calls Liggett settlement ploy to prompt take-over bid

'We do believe he is brokering a deal in a desperate attempt to get one of the other manufacturers to takeover his failing company,' said B.A.T spokesman Ralph Edmondson.

Shares in the UK tobacco and financial services company opened official trade 2.9% lower in London after overnight news that U.S. cigarette-maker Liggett Group is to settle 22 state lawsuits by admitting a link between smoking and cancer.

Analysts said that while any admission of guilt or the possibility of compensation payments in the tobacco industry is likely to spook the market, the news from Liggett may not be as bad as first thought.

'Yes, this is the first one to make an admission, but the size of the payment is nowhere near as bad as it could be,' said John Nussell, an analyst at Panmure Gordon.

Liggett will pay $25 million to settle the suit, plus 25% of its pretax profit over the next 25 years. The company will also put warning labels on cigarette packs and has agreed to turn over documents relating to industry discussions on nicotine. In New York, Philip Morris shares fell 6 5/8 Thursday to 115 3/8.

Late on Thursday, Liggett, the smallest of the major U.S. tobacco companies, with a 2% market share, agreed to settle tobacco litigation with almost half of the nation's attorneys general and give up potentially devastating documents.

Liggett, which has become the first tobacco company to admit the health hazards of smoking, has agreed to pay to the 22 states 25 percent of its pre-tax profits for the next 25 years as well as a one-off payment of $25 million. The accord also calls for Liggett to allow current and former employees - including lawyers - to testify against the rest of the industry.

B.A.T reiterated a long-held view that it will not be coerced into making a settlement with U.S. states who are suing the tobacco industry to recoup health care costs of treating smokers -- lawsuits that are costing the British group $100 million a year in legal fees.

'Court cases have gone on in the U.S. for 40 years. It's part of doing business there,' Edmondson said. 'We will not be approaching anyone for a settlement.'

In the markets tobacco investors seem to be hanging onto B.A.T Industries stock despite the overnight news. However, Jonathan Fell, tobacco analyst at Merrill Lynch International Ltd. in London, said there are worries about the damage that the Liggett developments could inflict on other U.S. tobacco companies, such as B.A.T subsidiary Brown & Williamson.

In particular, the analyst said he's concerned about the implications of Liggett's decision - as part of a settlement - to release documents relating to industry discussions on nicotine to anti-tobacco lawyers.

Last year, B.A.T lost a court case brought by a smoker who contracted cancer after a lifetime of smoking one of its brands. It's appealing the decision.

B.A.T Chief Executive Martin Broughton has already suggested that an industrywide settlement might be possible. Earlier this month, he said the company would consider any ''sensible'' solutions which are in shareholders' interests, although he added that at that stage, he hadn't seen any acceptable proposals.

At 8:54 a.m. EST (1354 GMT), B.A.T stock was off only 0.5 pence, or 0.1%, on the day at 488.5 pence, a fair intraday recovery: B.A.T was down as much as 4.6% in pre-opening trade and was still off almost 3% in early official trading.

Separately shares of French tobacco company Seita fell as investors shied away from the sector.

Seita shares were trading at FF205.5, down 2.9% or FF6.1 at 1315 GMT.

Analysts have said that Seita is largely protected from any anti-tobacco lawsuits because the government heavily regulates France's tobacco business, traders said that investors see the potential for damage suits.

Seita is currently being sued in the first-ever anti-tobacco case filed in France. Richard Gourlain and four members of his family have filed a suit against Seita, asking for more than 2 million francs in damages.

Traders said that Seita's shares were also lower because the company announced a restructuring plan Thursday evening that includes the closing of a dark-tobacco factory and the increase of light-tobacco production.

[02] Airbus says it's appalled at Delta/Boeing sole-supplier agreement

Officials of the European consortium told the Wall Street Journal that they are studying the antitrust and trade implications of Boeing's new sole- supplier deals with Delta Airlines and AMR's American Airlines.

Boeing is already being investigated by the European Commission and the Federal Trade Commission in the US over its proposed merger with McDonnell Douglas.

In a separate development that could spell more bad news for Airbus, British Midland said that it expects to announce an order in the next few weeks for at least 20 single-aisle aircraft, and that the competition remains 'wide open' between Boeing and Airbus.

That order could be valued at well above $1 billion, based on the list prices of the planes being considered. Currently, British Midland flies an all-Boeing fleet.

Sir Michael Bishop said that his carrier is looking to order 'not less than 20 aeroplanes,' and that the order will focus on jets in the 200-seat range -- the Airbus 321, Boeing 757 and Boeing 737-800 -- in order to boost the carrier's capacity.

Separately, Sir Michael said that British Midland has no plans to enter into any broad-based airline alliance, but will instead maintain its current system of bilateral code-sharing deals with more than a dozen airlines. 'All of our code-sharing deals are on a one-to-one basis,' he stressed, and there are no plans to change that structure.

He added that 'a number of European carriers' have already reached 'peak performance,' so the prospect of declining results from those carriers is another reason for British Midland to shy away from any sort of multilateral alliance.

Delta agreed to buy its new planes exclusively from Boeing, with initial firm orders for 106 jetliners totalling $6.7 billion.

Last November, American Airlines signed an initial order for 103 Boeing jets with list prices totalling $6.5 billion.

Boeing is the world's largest commercial-aircraft maker, followed by Airbus, with McDonnell Douglas a distant third.

Airbus is 'absolutely appalled' that big U.S. carriers are signing up for long-term sole-supplier agreements that eliminate competing bids, said John Leahy, sales chief for the European consortium at its headquarters in Toulouse, France.

'We don't think (the Delta deal is) in the best interest of the airline, the shareholders, the employees or the travelling public. We do believe it's in the best interest of Boeing,' Leahy said.

In addition to the initial firm orders, which will include 737, 757 and 767 models, Delta reserved purchase options for another 124 jets with a list- price value of about $8.3 billion. Delta also reserved 'rolling options,' involving very little commitment, to buy another 414 planes.

[03] Rexrodt says Krupp, Thyssen steel deal is inevitable

Meanwhile, however, reports from Germany say that steel maker Krupp has secured around 30% of Thyssen's capital in safekeeping with institutional investors, seeming to show that Krupp is still interested in taking control of its larger rival. Other reports indicate that Krupp has also secured a 15 billion Deutsche marks ($8.8 billion) credit line from banks.

Krupp has however denied that it had any Thyssen stock, or that its banks had been involved in buying up any of the company's equity.

Speaking at a coal industry conference, Rexrodt said the talks for a mutually acceptable deal between Krupp and Thyssen were clearly going well.

The two have begun talks on creating a joint steel company after Krupp suspended a hostile takeover bid for Thyssen as they try and find a mutually acceptable cooperation deal.

Johannes Rau, premier of North Rhine-Westphalia, where Germany's two steel giants are based, endorsed Rexrodt's sentiments, saying he was sure the two would find a common business solution through cooperation. 'They have the will to move away from confrontation and will work on a co-operative solution,' he told a coal conference.

[04] The U.K.'s Tesco group to become market leader in Ireland

Earlier today Tesco's announced the £630 million purchase of Associated British Food's Quinnsworth and Crazy prices stores.

In addition, Tesco said although it's too early to determine the exact cost or charge it will take to integrate the Irish businesses, costs will likely be in excess of the £40 million it spent to integrate Wm. Low, a British supermarket chain it acquired for £257 million in 1994. Tesco management said that integration of the Irish stores will not be as ''swift'' as that of Wm. Low due to the businesses overseas location and a lack of centralized distribution and head office in the southern part of the country.

However, it said that the investment will not lead to earnings dilution in the first year and that in three to four years time earnings will be boosted by ''a few percentage points'' as a result of the acquisition.

The deal, which is subject to EU approval, goes through, it will also give Tesco a firm base in the British province of Northern Ireland, where rival supermarket group Sainsbury is building new stores to cash in on a growing retail market.

The package includes 75 stores in Ireland that operate as Quinnsworth and Crazy Prices, with 8,300 employees and annual sales of about £900 million.

[05] UK Government OK's takeover of Yorkshire Electricity

Secretary of Trade and Industry Ian Lang said he had decided not to refer the acquisition to the Monopolies and Mergers Commission for investigation.

Yorkshire Holdings is the company jointly set up by two U.S. public utilities, American Electric Power Co. (AEP) and Public Service Co. of Colorado, to effect the takeover.

Successful completion of the deal would leave just one independent regional electricy company in Britain from the 12 that were created by privatizations in 1990.

In a statement, Lang cited the DTI's policy of considering each merger on its individual merits.

He said Yorkshire Holdings had pledged to cooperate with the U.K. electricity regulator, which plans to amend Yorkshire's license to require use of all available resources to maintain its investment-grade credit rating.

After the announcement, Yorkshire Electricity's shares were up 17 pence at 921 pence, but still below Yorkshire Holdings's offer price of 927 pence.

Yorkshire Electricity's shares have been trading below the offer price because of concern that the deal won't go through before the May 1 general election.

The election is a key factor because the Labour Party - far ahead in polls to win control of the government - is seen to be less keen on takeover activity than the Conservative government.

Yorkshire Holdings has said it expects to complete the takeover by mid- April.

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

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