European Business News (EBN), 97-04-07

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

Page last updated April 7 1740 CET

CONTENTS

[01] Germany denies softening its stand on EMU criteria

[02] AOL in talks to buy Compuserve for $1.2bn

[03] Growth in UK business optimism slowed in first quarter

[04] Microsoft buys WebTV for $425 million

[05] Japan current account surplus widens in February

[06] Credit Suisse may launch on the internet

[07] Burmah Castrol 1996 profit climbed just 3%

[08] Williams Holdings extends bid for Chubb Security

[09] Italy CPI rises in March, slightly above expectations

[01] Germany denies softening its stand on EMU criteria

An article in the London-based Financial Times had suggested Waigel was in favour of easing Germany's position over the 3% deficit to GDP ratio imposed as a requirement on monetary union.

'The position of the finance ministry is unchanged,' the spokeswoman said. The ministry still advocates a 'strict application of the criteria on the basis of the actual 1997 data,' she said.

The Financial Times reported Waigel has moved to a more flexible approach permitted under the Maastricht Treaty, based on comments he made at the meeting of European finance ministers and central bankers over the weekend in Noordwijk, the Netherlands.

The German delegation at this weekend's Ecofin conference in Northern Holland had showed renewed confidence that Germany would meet the EMU convergence criteria in time, and decided that the first wave of EMU members will be announced in just over 12 months time - at a summit early in May 1998.

[02] AOL in talks to buy Compuserve for $1.2bn

Management at AOL, on the other hand, is steeped in consumer marketing and East Coast media executives who have aggressively acquired subscribers and publicly pummeled rivals large and small.

It wasn't immediately clear whether any deal between the No. 1 and No. 2 competitors might raise eyebrows at the Justice Department, although AOL would be expected to argue that the merged company would be tiny compared to the scale of the global Internet.

Another big hurdle may be persuading CompuServe's subscribers - many of whom view themselves as seasoned on-line veterans, in contrast to the rookies, or 'newbies,' who flock to AOL - to stay with an AOL-run business.

Moreover, a stock deal could cause AOL shares to decline because of the large number of new shares that would have to be issued.

If CompuServe fetches a share price of $11, AOL would have to issue roughly 21 million shares, increasing its total shares outstanding by 22%. A deal at $14 a share would require AOL to increase its shares outstanding by 28%.

Wall Street appears to favor a deal: AOL shares rose nearly 14% last week in the wake of reports of a possible bid, closing on Friday at $48.375 in composite trading on the New York Stock Exchange.

Still, a bid in the $14 range would fall well below CompuServe's 52-week high of $35.50, when the company had a market capitalization in excess of $3 billion.

CompuServe was founded in 1969 and purchased by H&R Block in 1980, and it has always catered to a technically adept audience. AOL leaped past CompuServe by making a consumer push, and CompuServe's most direct counterattack - the WOW! service - had to shut down in only seven months amid what CompuServe brass called a 'bloodbath of spending and churn.'

At the same time, revenues have fallen at the company's flagship service, subscribers have fled and management has stepped down as H&R Block executives have taken a more hands-on approach to 'fix the business' and prepare it for a sale, one executive has said.

In the quarter ended Jan. 31, CompuServe posted a loss of $14.2 million, or 15 cents a share, on revenue of $211 million. Subscribers to the service fell by 100,000 to 2.9 million from the previous quarter. Shortly before that report, CompuServe's president and chief executive, Robert J. Massey, stepped down, leaving his post vacant.

The bright spot for CompuServe is its network-services division. It has grown 35% annually for the past couple of years and is expected to post $260 million in revenue for fiscal 1997 ending April 30, representing roughly one-third of the company's total revenue of $855 million.

That business could help AOL more effectively enter the high-margin, low- churn market for serving businesses.

Ever since an outage in August that brought AOL to a grinding halt for 18 hours, the company's reliable image has suffered tremendously, and the CompuServe division, which has more than 1,100 corporate customers, could help repair that image.

[03] Growth in UK business optimism slowed in first quarter

That's all according to a joint survey by the Confederation of British Industry and accountants Coopers & Lybrand. Employment is expected to 'level off' in the second quarter. 'This is an encouraging survey with rising employment and relatively buoyant business optimism and volumes, said CBI Chief Economic Adviser Kate Barker.

'However, the survey does indicate a reduced tempo of growth, with a slight rise in the level of demand as a constraint on business over the coming year.

'Together with the slower growth in profitability, this indicates that business conditions may have tightened a little from the very strong position reported in December,' she added.

Some 38% of companies said they increased the number of people they employ in the first quarter compared with 27% reporting a reduction, the survey of 302 firms shows.

The difference between the two figures, a net balance of 11 percentage points that increased employment, compares with net balances that cut employment of 9 points in the fourth quarter and 29 points in the first quarter of 1996.

The overall pick up in employment was faster than companies predicted when questioned in the last survey, with securities traders and fund managers reporting the largest increase. General insurers and insurance brokers reported the largest declines.

Business optimism rose for the fifth quarter in a row, but at the slowest rate since December 1995. Securities traders and life insurers posted the largest increases in confidence, with only general insurers recording a fall.

The volume of business rose 'moderately' during the first three months of the year, though not as quickly as in the previous quarter when they increased at the fastest rate since December 1989. Private individuals and financial institution enjoyed the strongest rise in business volumes.

Similarly, overall profitability rose 'modestly' in the first quarter after increasing at the quickest rate since September 1994 in the fourth quarter. Profitability is expected to rise more strongly in the second quarter.

[04] Microsoft buys WebTV for $425 million

Microsoft said it hopes the move will help it become a leader in the new frontier of digital television where consumers can enjoy better pictures, enhanced programming, Internet access and video and data feeds on their televisions.

'We want to take the personal computer and its progeny...quickly into the home,' Microsoft Senior Vice President Craig Mundie told reporters on a conference call.

Founded in 1995, WebTV Networks has developed a set of technologies and guidelines for manufacturers to make set-top boxes that allow consumers to use their televisions to surf the Internet and send and receive electronic mail.

WebTV, which includes Microsoft co-founder Paul Allen among its investors, licenses its design for set-top boxes to Philips Consumer Electronics Co. and Sony Corp.

The consumer-friendly set-top box, about the same size as a cable box, hooks up to the Internet via a regular telephone line and is easy to use. The system also features a credit card reader that allows users to shop on the Internet.

'This acquisition is the cornerstone of our long-term effort to combine the best of the Internet and the best of digital television technology,' Mundie said.

While about 98 percent of homes in the United States have televisions, even more than have telephones, only about a third of homes have computers and only about one third of those with computers have Internet access.

While services such as WebTV are undoubtedly in their infancy, industry experts have predicted explosive growth for the sector. Microsoft's acquisition of WebTV is its attempt to win the battle to take the Internet into every home.

Microsoft said that while numbers were still being finalised it expects to take a charge of between 50 percent and 60 percent of the purchase price, or between $212.5 million and $255 million.

The charge will be taken in either Microsoft's fourth fiscal quarter of 1997 or the first fiscal quarter of 1998, depending on when the deal closes. The rest of the goodwill for WebTV will be written-off shortly after that.

Microsoft said the $425 million comprised mainly Microsoft shares given to the management of WebTV and its employees but declined to specify how much of the acquisition price was cash.

Seatle-based Microsoft made an equity infusion into WebTV in September of last year. Since then the two firms have been negotiating to cross-license each other's technology.

The acquisition, the biggest for Microsoft so far in the Internet sector, will bring Microsoft's Internet Explorer browser and Window CE, a scaled down version of the Window 95 operating system made for pocket computers, to WebTV which will lead to a more sophisticated product, Mundie said.

WebTV, based in Palo Alto, California, will operate as a unit of Microsoft and will continue to be managed by President and Chief Executive Officer Steve Perlman.

Microsoft also said future versions of its Windows operating system will allow personal computer users to view traditional television programmes, enhanced television programmes and Internet broadcasts, and access innovative new services such as personalized news delivery on their PCs.

[05] Japan current account surplus widens in February

But a rise in the politically sensitive trade balance component of the current account doesn't necessarily mean that monetary officials in the U.S. and Japan will start pressing for a weaker dollar, analysts said.

'It's further evidence that we're seeing a definite turn in Japan's external surpluses,' said Ronald Bevacqua, economist at Merrill Lynch (Japan). 'But it doesn't mean the dollar will weaken and the Japanese yen will strengthen on this,' he said, noting that wide interest rate differentials between the U.S. and Japan still favor a stronger dollar.

Indeed, currency traders shrugged off the current account surplus Monday morning, continuing to buy dollars and sending the U.S. currency to an intra-day high of Y124.90 at 0030 GMT. The dollar was quoted at Y124.31 in New York late Friday and Y123.50 in Tokyo Friday.

As reported, Japan's current account surplus for February, before adjustment for seasonal factors, widened 15.4% from the year-earlier month to 865.2 billion yen. It exceeded consensus forecasts for a surplus of 779.7 billion yen in the current account balance, which is the difference between the nation's income from foreign sources and foreign obligations payable excluding net capital investment.

The latest current account data follow remarks by U.S. Treasury Secretary Robert Rubin, who in a one-day visit to Tokyo last Friday cautioned that a significant resurgence of Japan's external surpluses should be avoided. He also called on Japan to promote policies aimed at strengthening domestic demand-led growth.

However, Merrill Lynch's Bevacqua said Rubin won't become seriously concerned about the level of Japan's current account surplus until it comprises 2% of the country's gross domestic product (GDP), or roughly 10 trillion yen annually.

At present, the current account gap is roughly 1.5% of GDP.

[06] Credit Suisse may launch on the internet

The move's likely to be announced at a news conference on Thursday. The new service would allow customers to check account balances, pay bills or buy and sell stocks.

Credit Suisse is reported to be planning to use special encryption and decoding software to protect data passing between customers and the bank from being read by outsiders.

The bank itself would say only that the event concerned 'a new, attractive product in the area of direct banking.'

[07] Burmah Castrol 1996 profit climbed just 3%

Burmah said at constant currency rates, pretax profit would have increased 6% in 1996.

'The outlook in Continental Europe remains uncertain, and efforts to meet EMU criteria (European Monetary Union) could further weaken consumer confidence,' Chairman Lawrence Urquhart said.

'Market conditions are unlikely to show much change over 1996,' he said.

[08] Williams Holdings extends bid for Chubb Security

In a statement to the market, Williams said it had received valid acceptances representing around 58% of Chubb's share capital by Friday.

Williams Holdings PLC is a U.K.-based manufacturer, with four product lines. Under the Yale brand name, Williams' security-products division makes locks, door closers and exit devices. Williams also has a fire- protection division, including Kidde International, Sicli and Sides.

Its home-improvements division includes brands such as Polycell and General. The fourth division - special operations - looks for investment opportunities.

Nearly 90% of Williams' sales come from outside Britain.

[09] Italy CPI rises in March, slightly above expectations

The state statistical institute Istat said that when tobacco prices are excluded from the index, prices rose 0.1% and 2.2%, respectively.

The index excluding tobacco is comparable to consumer price data released by Istat prior to January, 1996. That month, Istat changed both the categories and the weightings used to calculate the index. The ex-tobacco consumer price data is also that used for many previous Bank of Italy, government and economist forecasts and targets.

In addition to their traditional figures, E.U. members also provide a second set of CPI data each month, using standardized methods to calculate the figures.

These standardized CPI figures will be used as the basis of comparison when E.U. leaders meet in 1998 to decide which member states meet the various Maastricht Treaty criteria.

Under the Treaty, countries wishing to participate in the single currency must have had an average inflation rate over 12 months not more than 1.5% above the average of the three best performers.

Market expectations were for a rise in inflation of a 2.2% rise on the year- earlier period.

Among March's figures, Istat said that the highest yearly rise was seen in the housing sector, up 5.5%, and in the education sector, up 3.8%. The smallest year-on-year rise was registered in the other goods and services sector and in the free time and culture sector, both up 0.8%,

Meanwhile, the highest month-on-month rise of 0.4% was seen in the housing, water and electricity sector while free time and culture was down 0.4% and food was down 0.1%.

Istat noted that the yearly average inflation rate for the twelve months ended March, 1997, was 3.2%. The average rate for all of 1996 was 3.9%.

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

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