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

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

Page last updated Fri, July 04 5:12 PM CET

CONTENTS

[01] German insurers join forces in mega-merger

[02] Veba agrees to buy Wyle Electronics for $630 million plus debt

[03] Price of gold collapses to twelve-year low

[04] Mirror Group agrees to offer $475 million for Midland

[05] U.K. court clears way for class-action tobacco suit

[06] German parliament blocks tax reform

[07] Bertelsmann, AOL join forces to bid for CompuServe

[08] Electrolux may close Swedish plants

[09] Canal Plus signs stake swap deal with Kirch

[10] E.U. GDP shows no change in real terms

[11] Corporate and Economic Briefs

[12] World News Briefs

[01] German insurers join forces in mega-merger

As a result of the merger, reinsurance and direct insurance will in the future contribute about equally to Munich Re's premium income, the company said in a statement.

Based on 1996 accounts, the merger would result in an increase of about 5 Deutsche marks in Munich Re's earnings per share, the company said. And with the inclusion of the Victoria Group in the Munich Re's group of consolidated companies, the gross consolidated premium income will increase by some 8.4 billion marks to about 46.6 billion marks, excluding premiums from provisions for policyholders' dividends, the company said.

The management boards of the groups involved signed a declaration of intent last night. The merger is subject to approval by German cartel authories as well as the general meetings of shareholders in November.

[02] Veba agrees to buy Wyle Electronics for $630 million plus debt

For Duesseldorf-based Veba, Germany's fourth-largest company, the transaction is the latest in a series of moves intended to boost the company's U.S. presence. Veba plans to list on the New York Stock Exchange later this year and invest several billion dollars in the U.S. over the next several years.

Veba said its Raab Karcher electronics trading unit will make an offer for all the outstanding common shares of Wyle by July 10. Raab Karcher will retain the Wyle name, headquarters and work force. Veba has agreed to pay $50 a share, which represents a 40% premium to Wyle's stock price over the past 90 days.

Veba's chairman, Ulrich Hartmann, said the takeover would bring Veba 'a significant step closer to its strategic goal of focusing on large business units with major market positions in the trading sector.'

Irvine, California-based Wyle posted sales last year of $1.2 billion with pretax earnings of $66 million. Since 1994, its earnings have risen an average of 71% a year while sales have increased an average of 25%. The company distributes electronic parts, computer systems and peripherals.

Veba's Raab Karcher unit is one of the world's leading companies in the fast-growing electronics-distribution business. With the addition of Wyle, Raab Karcher expects its electronics sales to rise to $3 billion in fiscal 1997. Raab Karcher's electronics business reported sales of just under $1.7 billion last year.

[03] Price of gold collapses to twelve-year low

The Australian central bank's moves gave the gold market a nasty shock, reminding participants it's not only the European central banks that may be lining up to sell down their reserves.

Under pressure to meet the requirements of European Monetary Union, European central banks have been widely tipped to reduce their gold holdings. But the Australian sale has put a question mark next to central banks worldwide, intensifying bearish sentiment.

'Everyone has been focused on the European central banks as sellers, and no one has ever bothered to look outside and see what the other central banks are doing,' said Keith Goode, gold analyst with Bell Securities in Sydney. 'Consequently it's come as a big surprise to find the RBA (Reserve Bank of Australia) selling.'

'The sale suggests, well, if Australia sells, who else is in a position to sell and that's an excellent question,' Goode said.

Meanwhile, dealers said the silver price slipped when heavy speculative selling sent gold prices falling to their lowest levels in nearly 12 years.

'Silver has been uncertain after repeatedly failing to hold gains recently. The fall in gold was the last straw for it,' a dealer said. But silver still had the better chance of recovery compared to the fundamentally weaker gold market, he added.

[04] Mirror Group agrees to offer $475 million for Midland

Mirror Group said the acquisition would beef up its presence in central England's Midlands region, where about 10% of Mirror's newspapers are circulated.

The offer gives 210 pence in cash a Midland share and is expected to include an alternative for Midland shareholders, which would allow shareholders the ability to receive Mirror Group shares instead of cash, an additional share election and a loan note alternative. Midland also said that it expects profit before tax and exceptional operating items for the six months ended June 29 of not less than £13.2 million and an interim dividend of 2 pence a Midland share.

The deal hinges, however, on whether the Department of Trade and Industry approves the transfer of MIN's newspaper titles, which isn't expected before October. If it does, MIN Chief Executive Chris Oakley would join the board of Mirror Group after the bid becomes unconditional.

Mirror Chief Executive David Montgomery said he was confident the purchase 'will make a positive and significant contribution to Mirror Group's future growth prospects.'

Midland also plans to declare a second interim dividend of 3 pence a Midland share later this year or early next year.

Neither dividend will be conditional on the offer with Mirror Group.

[05] U.K. court clears way for class-action tobacco suit

Case is transferred to Justice May for a directions hearing, expected later this month

A U.K. high court ruling cleared the way for a multi-billion pound compensation lawsuit against British tobacco companies Gallaher and Imperial Tobacco Group.

Forty-seven lung cancer victims have joined together in a group action demanding compensation from Gallaher and Imperial for their alleged failure to limit health risks to smokers. A senior High Court official who had been asked to determine a timetable for any proceedings transferred the case to Justice May for a directions hearing, which is expected to be held this month. The main hearing, which could still falter if the tobacco companies succeed in getting the action struck out, is expected within 18 months.

However, Gallaher Group said the hearing was a very preliminary administrative step and stressed that the high court had not ruled it 'practical or necessary' to assign a trial judge. 'Imperial continues to be advised that we have strong defences against this and any other product liability claims,' the company said.

Gallaher also pointed out that the court rejected the application by Martyn Day, the lawyer representing the cancer sufferers, for a trial judge to be assigned. But Day said the tobacco giants had failed in their attempt to have the case thrown out. 'What I'm very pleased about is that they agreed to a very early hearing,' he said.

Day estimates that 35,000 people are diagnosed with lung cancer in Britain every year and up to 20,000 of them would have a good claim. He put the potential cost to the tobacco companies at up to one billion pounds ($1.6 billion) a year in damages.

Day said the plaintiffs were going to court on Monday to determine the next stage of the hearing. May has not been allocated for the whole case but, initially at least, just to decide on the next stage of the proceedings.

[06] German parliament blocks tax reform

The tax reform proposals for 1998 and 1999, which passed the lower house with the ruling coalition's majority, now go to a conference committee that will attempt to seek a compromise. The Social Democrat majority in the upper house, which groups representatives of Germany's 16 states, called the laws 'fiscally not solid, socially unbalanced and economically off target.'

Finance Minister Theo Waigel said the government has 'the best intentions of reaching an agreement' and appealed for a compromise on lower taxes, which he said would boost investment, create jobs and stimulate economic growth. The tax system is one reason why foreign investment is 'passing Germany by,' Waigel told the upper house, or Bundesrat. The Social Democrats, who have drafted their own plan, say the government's tax proposals favor the well-off and fail to make clear how lost revenue would be made up.

German industry has also blasted the plan because it limits business writeoffs next year to make up for a lowering of the 'solidarity surcharge' tax for rebuilding eastern Germany. The government's plan would lower personal and corporate income taxes to postwar lows in 1999, lowering the tax burden by some 30 billion marks ($17.5 billion), and simplify the tax system.

The minimum personal income tax rate would be lowered to 15% from about 26 percent on income of more than 13,000 marks ($7,600). The highest personal tax rate - for incomes of 90,000 marks ($53,000) or higher - would drop to 39 percent from 53%.

Kohl is not only struggling with tax reform. The opposition is also blocking government plans for an overhaul of the national pension system, and the government is scrambling to meet debt and deficit limits for the planned European single currency.

[07] Bertelsmann, AOL join forces to bid for CompuServe

According to people close to the deal, Bertelsmann, which owns a 5% stake in AOL, is contributing cash to sweeten AOL's offer of roughly $1 billion in stock for CompuServe. The amount of Bertelsmann's contribution couldn't be determined.

The renewed bid is the latest twist in discussions among CompuServe, AOL and CompuServe's 80% owner, H&R Block of the U.S. In April, AOL was negotiating the purchase of CompuServe for its profitable on-line services that have more than 1,100 business customers as well as roughly three million members world-wide.

But when the U.S. Congress introduced a bill closing a tax loophole that would have benefited H&R Block, the potential deal was scuttled. This week, however, AOL revived its efforts to acquire CompuServe. People close to the talks said AOL made an offer of roughly $1 billion in stock but that H&R Block rejected the offer.

The tax preparation company is believed to be holding out for a better offer. Bertelsmann, which has a strong relationship with AOL in Europe, could be a big enough force to push the deal through.

If completed, the deal has the potential to give AOL control of more than half of all U.S. on-line customers. The company currently boasts more than 8.5 million users. A mightier AOL might also fend off threats of newer entrants, especially telecoms companies, to the market.

In Europe, AOL would rocket into a leading on-line position, more than doubling its customer base. AOL currently has about 600,000 users in Europe, while CompuServe boasts about 900,000 users. Currently, mighty Deutsche Telekom dominates the European arena with its T-Online service, which has about 1.4 million users.

'AOL will become an unstoppable powerhouse across the globe with access to CompuServe's customers,' says Chris Champion, an analyst at telecommunications market research company Yankee Group Europe.

For H&R Block, an AOL rescue might provide an easy exit from a market that has frustrated the company over the past year.

H&R Block had planned a full spinoff of CompuServe last year, but a rapid decline in Internet stocks forced the company to withdraw. Since then, CompuServe's chief executive has resigned, its consumer on-line service, dubbed WOW!, has been folded less than a year after it was launched, and the company has been losing subscribers and money.

[08] Electrolux may close Swedish plants

No other Swedish plants will be closed as part of the major restructuring measures announced in mid-June, but other forms of rationalization may still take place, Electrolux said in a brief statement.

Closure of the factory in Alingsaas, which has 190 employees, is only one alternative and no final decisions have yet been made, the company said. The plant produces equipment for industrial kitchens.

Meanwhile a number of alternatives are under consideration for the Aatvidaberg plant, including a sale of the factory. Some 90 employees work at the plant which manufactures cleaning chemicals.

Electrolux has earlier announced it will close 25 plants and 50 warehouses and lay off 12,000 people world-wide during the coming two-year period. Today the company has 105,000 employees, of which around 10,000 are based in Sweden.

The triggering factor for the restructuring was the narrow and shrinking margins, Electrolux said. In a meeting with the European Works Council in London Thursday Electrolux' Chief Executive Officer Michael Treschow said the vast bulk of the restructuring will take place in western Europe and North America.

[09] Canal Plus signs stake swap deal with Kirch

Canal Plus simultaneously bought Kirch's 45%-interest in Italy's Telepiu. A spokeswoman for Canal Plus said the company bought the Telepiu stake for about 2.9 billion francs.

In a further development, Kirch Group plans to sell a 12.5% stake in Premiere to the Bertelsmann media venture CLT-UFA, the company said. Kirch said it would sell a 12.5% stake to CLT-UFA so that each company will now hold a 50% share of the pay-TV channel.

CLT-UFA is the result of a merger finalized at the beginning of this year between the television operations of German media group Bertelsmann and Cie Luxembourgeoise de Telediffusion.

Canal Plus said it 'intends to sell a large part of this interest (in Telepiu) to Italian partners.' The company's spokeswoman said that, while the exact portion to be sold had yet to be determined, most of the 45%- stake would go.

'Telepiu is an Italian station and we think it should have Italian shareholders,' she said.

Both the Premiere and Telepiu stakes were valued at $1,250 per subscriber for the transaction. Prior to the transaction, Kirch held a 25% stake in Premiere, while Bertelsmann owns a 37.5% stake.

Canal Plus' board had approved the transaction earlier in the week.

[10] E.U. GDP shows no change in real terms

Eurostat said the stagnation of the E.U. economy is caused by zero growth in private consumption and a 0.1% fall in fixed capital formation.

However, GDP in the E.U increased by 1.3% in the first quarter of this year compared with the first quarter of 1996, according to estimates by Eurostat.

That compares with a 4.1% rise in the U.S. and a 2.6% rise in Japan in the same period.

[11] Corporate and Economic Briefs

Italy's year-on-year inflation rate stood at 1.4% in June - the lowest level since 1969. The June rate, which was in line with markets and government expectations, compared with a 1.6% yearly rise in May. Istat, the state statistical institute which reported the data, also said that the consumer price index was unchanged in June from May.

The former chairman of a major Japanese bank was arrested as part of a growing racketeering scandal that has jolted this country's financial industry. Tadashi Okuda had already resigned from his post as chairman of Dai-Ichi Kangyo Bank in mid-June as part of a reshuffle of top management aimed at restoring public confidence in the bank. Eleven executives at Dai- Ichi Kangyo, one of the world's largest banks, have now been arrested. Another former chairman of the bank, who was being questioned by prosecutors, hanged himself last week.

EU Commission President Jacques Santer is to recommend a reduction in grants and aid to Ireland, a key component in its booming economy, state broadcaster RTE reported. Its Brussels correspondent said Santer would outline his plans in an address to the European Parliament on July 16 covering a reform of EU structural funds and its Common Agricultural policy. The report said Santer's proposals would be linked to the eventual enlargement of the bloc to include former Communist states.

Finnish mobile telephone call sales grew 40% last year, leaving them poised to overtake the local fixed-line call market, the government said. 'Mobile communications continue to be the fastest-growing area of telecommunications in Finland,' the ministry of transport and communications said. Finland has the highest mobile phone density in the world, with more than 32 handsets per 100 inhabitants.

Thorn said it intends to withdraw from its domestic rental operations in France, The Benelux region and Finland. Thorn's business-to-business operations in these countries and the Crazy George's test in France aren't affected by the proposals.

[12] World News Briefs

A British parliamentary report attacked two former Conservative ministers for conduct 'well below the standards expected of members of parliament' in accepting cash from a businessman for lobbying on his behalf. The report from parliament's standards commissioner Sir Gordon Downey said Tim Smith received at least £18,000 ($30,150) from Mohammed Al-Fayed while Neil Hamilton got an amount which was unknown but probably at least as great.

Pyhatunturi, in Finnish Lapland, will be the scene for the World Championship of Mosquito Killing '97. The event starts tomorrow and runs through to July 12.

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

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