/raid1/www/Hosts/bankrupt/TCREUR_Public/000419.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Wednesday, April 19, 2000, Vol. 0, No. 7
Headlines
[CAUTION: This Newsletter Contains Unedited Text]
* A U S T R I A *
WIENERBERGER: 1 of its Biggest Shareholders Wants to Put it Up for Sale
* G E R M A N Y *
ATECS: Mannesmann Approves Sales
* R U S S I A *
NOVOKUZNETSK NIKOLAYEVSK: Face Bankruptcy Proceedings
* U N I T E D K I N G D O M *
DEFENCE EVALUATION: UK Agency Sell-off to go Ahead
HYDER: Ailing Welsh Utilities Group
FDIA: Need Another Player to Survive
KWIK SAVE: Drop Sale, Buyer Failed to Generate Satisfactory Offer
LONDON TOWER: Casino in Knightsbridge is for Sale
NISSAN CAR: Struggling to Compensate for the High Value of Sterling
NORWEB: United Utilities is Seeking Buyer for this Unit
PHH UK: For Sale to Pay Down Debt
SEVERN TRENT: Expected to Reduce Annual Profits by About 100m.
SUNLIFE UK: Losses of 126 million in 1999
[CAUTION: This Newsletter Contains Unedited Text]
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A U S T R I A
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WIENERBERGER: 1 of its Biggest Shareholders Wants to Put it Up for Sale
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Financial Times April 17, 2000
Shares in Wienerberger, the Austria-based brick company which is the
world's largest, edged higher in heavy trading on Monday despite the
company's efforts to defuse speculation that one of its two biggest
shareholders wants to put it up for sale.
Wienerberger's shares resumed trading after its managing board issued a
statement saying it was unaware of any takeover bid. Austria's new
takeover code requires any offer to be announced immediately.
Trading in the company's shares, which had risen more than 40 per cent
in the previous six weeks, was suspended on Friday after Thomas
Prinzhorn, an Austrian politician, issued a statement saying
Wienerberger was about to receive a E29.8 per share bid, "well below its
real value of E35 to E40 per share".
Mr Prinzhorn has refused to elaborate but analysts in Vienna suggested
his intervention was designed to embarrass Gerhard Randa, Bank Austria's
chief executive, who is keen to reduce its industrial holdings.
They said the estimated E500m ($478m) value of Bank Austria's 25 per
cent stake in Wienerberger would bolster Mr Randa's bank's weak capital
ratios.
Wienerberger's shares closed 20 cents higher at E25.35 on Monday.
Christian Dumolin, vice-chairman of Wienerberger's supervisory board and
head of Belgium's Koramic Building Products, which also owns 25 per cent
of Wienerberger, denied that a bid was in the offing.
Koramic, which is valued at E500m and is roughly a quarter of
Wienerberger's size, has right of first refusal on Bank Austria's stake
in a shareholder agreement that has six years to run.
Mr Dumolin told Reuters: "I have not bid [for Wienerberger] and if Bank
Austria had bid, I would also be informed."
Nevertheless, analysts believe Wienerberger is vulnerable. Mr Randa's
failure to squash the speculation by issuing a statement in his capacity
as chairman of Wienerberger's supervisory board has strengthened the
suspicion that Bank Austria is actively discussing how to dispose of its
stake.
Holderbank, one of the world's biggest cement producers, is unlikely to
want to diversify into Wienerberger's brick and roofing tile business.
However, several analysts believe that CRH, the Irish building materials
group, is a likely bidder.
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G E R M A N Y
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ATECS: Mannesmann Approves Sales
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Financial Times April 17 2000
The Mannesmann supervisory board gave formal approval on Monday to the
company's decision to sell its automotive and engineering business to
Siemens and Bosch.
The board, which acts in a non-executive capacity, included members of
Mannesmann's new owners, Vodafone AirTouch for the first time. During
the meeting Chris Gent, Vodafone's chief executive, was elected
supervisory board chairman and a decision to pay a dividend of E0.61 for
1999 was approved.
Klaus Zwickel, who is a Mannesmann supervisory board member as well as
head of IG Metall, the union, also said Atecs' new owners planned no
lay-offs or plant closures for the next three years.
Mannesmann decided on Friday to award Atecs to Siemens and Bosch instead
of steel and engineering group, Thyssen Krupp.
Although Siemens had made a E9.1bn ($8.7bn) offer, trumping an earlier
E8.75bn bid from Thyssen Krupp, it is said to have substantially raised
this offer during a final round of talks with Mannesmann.
Mannesmann's decision is believed to have come despite Thyssen Krupp's
last minute offer to buy Mannesmann's steel tube business in a last-
ditch attempt to secure its bid.
Thyssen Krupp's management is said to have offered the last-minute
concession as part of a wide range of issues discussed during the
negotiations at Mannesmann's headquarters in Dsseldorf.
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R U S S I A
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NOVOKUZNETSK NIKOLAYEVSK: Face Bankruptcy Proceedings
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Top of Form 1
Copyright 2000 Agence France Presse
Agence France Presse
April 17, 2000, Monday 4:17 AM, Eastern Time
SECTION: Financial pages
LENGTH: 506 words
HEADLINE: Russia's leading aluminium groups announce merger
BYLINE: Marielle Eudes
DATELINE: MOSCOW, April 17
BODY:
Russia's two leading aluminium groups and known rivals announced on
Monday the creation of a new firm, Russky Aluminii, which will control
80 percent of the Russian aluminium market.
Shareholders in the Sibirski Aluminii group (Sibal) and at the Kraz and
Braz aluminium plants, controlled by the Sibneft group, announced the
creation, on equal terms, of the new firm, the Interfax news agency
reported, citing the company's press release.
The new holding company, which will be led by Sibal president Oleg
Deripaska, will control between seven and 10 percent of the world
aluminium market.
The consolidation of the two groups will take between three months and a
year, while Russian antitrust officials and international experts assess
the validity of the merger, the press release said.
While the new group is being formed, Russky Aluminii will coordinate
purchases and exports of aluminium on international markets, Interfax
reported.
The economic weekly Expert said that the new group should challenge
industry giants on a world scale.
Russian production of aluminium grew by eight percent from 1990 to 1999,
reaching a total of 3.1 million tons, more than 80 percent of which was
exported.
Rumors of the merger have circulated since the beginning of April.
Last week, Russian antitrust minister Ilia Yuzhanov called the merger
justified, saying that international markets were driving national
aluminium producers to combine their efforts.
The Russian aluminium industry has been in disarray since February when
Sibneft bought a controlling interest in the country's two largest
aluminium plants.
Sibneft is run by Russian businessman Roman Abramovitch, a close ally of
former Russian president Boris Yeltsin.
The move, achieved through numerous Sibneft subsidiaries, infuriated
Deripaska.
Sibal's president responded by launching bankruptcy proceedings against
Novokuznetsk Nikolayevsk, which provided some 80 percent of raw
materials used by Russia's aluminium factories.
Monday's merger a KVZmcement was hailed by several Russian industry
experts.
Renaissance Capital analyst Svetlana Smirnova called the union
"indispensable," adding that the new group's profitability could only
help regulate aluminium stocks on international markets.
"No one has anything to gain from an aluminium war," she said.
A western expert called the move a "reversal of fortune" for "big
capitalists" in an industry that has often been dominated by organized
crime since the break-up of the former Soviet Union.
But efforts to clean up the industry are far from being achieved, with
organized killingsa still being reported regularly in the media.
Last week, the daughter and son-in-law of a colleague of Anatoly Bykov,
the former strongman at the Kraz plant, were murdered.
Bykov, who held a 28 percent share in the Kraz plant, is expected to be
extradited soon to Russia from Hungary, where he was arrested in October
under an Interpol warrant on homicide and money laundering charges.
meg/sst/ml
LANGUAGE: ENGLISH
LOAD-DATE: April 17, 2000
Bottom of Form 1
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U N I T E D K I N G D O M
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DEFENCE EVALUATION: UK Agency Sell-off to go Ahead
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Financial Times April 17, 2000
The Ministry of Defence is pressing ahead with plans to privatise a
large part of the UK government's defence research laboratories in a
sale that could value the operations at around 1bn ($1.6bn). But
widespread opposition to the plan, announced last year, has forced it to
revise the terms of the sell-off. In a consultation document published
on Monday the government said it planned to split the Defence Evaluation
and Research Agency into two organisations. Around three-quarters of the
present activities would still be privatised, but the most sensitive
areas, including the chemical and biological defence sector and the
majority of the staff from the Centre for Defence Analysis, would be
retained within the MoD.
The government attempted to deflect criticism that the partial sell-off
of Dera would undermine the UK's special relationship with the US,
because the Pentagon would not want to share military secrets with
private industry. John Spellar, armed forces minister, told parliament
that the latest proposals had been discussed with the Clinton
administration and took account of concerns expressed by the US.
HYDER: Ailing Welsh Utilities Group
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Top of Form 1
Copyright 2000 The Financial Times Limited
Financial Times (London)
April 17, 2000, Monday London Edition 1
SECTION: FRONT PAGE - COMPANIES & MARKETS; Pg. 25
LENGTH: 444 words
HEADLINE: FRONT PAGE - COMPANIES & MARKETS: Nomura bid for Hyder
expected JAPANESE INVESTMENT BANK'S TAKEOVER OFFER WOULD VALUE AILING
WELSH UTILITIES GROUP AT ABOUT Pounds 365M:
BYLINE: By CHARLES PRETZLIK
BODY:
Nomura International, the Japanese investment bank, is today expected to
make a formal takeover offer for Hyder, the Welsh water and electricity
group.
The bank has already been in discussions with Hyder, but is planning to
present an offer to the group's board that is likely to be valued at
close to Hyder's closing market price on Friday. That would value the
group at about Pounds 365m.
The shares closed on Friday at 235p, down 30p on the day despite a
statement from Hyder saying it was in discussions with a third party
about a possible offer for the group at a small premium to Thursday's
closing share price of 265p. At that price, Hyder would have been worth
at least Pounds 410m.
Nomura is bidding through its Principal Finance Group, headed by Guy
Hands. It has enlisted Mike Kinski, the former head of transport group
Stagecoach, and a former executive at Scottish Power.
The board of Hyder will meet today to discuss its options. It is
expected to be reluctant to recommend Nomura's bid and will also
consider a break-up strategy and other means of returning capital to
shareholders.
The US owners of South West Electricity - Southern Company and
Pennsylvania Power and Light - are considering an offer for Hyder's
power distribution business.
Hyder, the largest private sector company in Wales, is burdened by
Pounds 1.9bn of debt and its shares have plummeted from Pounds 10.49 in
1998.
The group's debt level, which includes preference shares, is a legacy of
the water company's purchase of Swalec, the South Wales electricity
company, for Pounds 821m in 1996.
Last year Hyder warned it might be forced to break itself up if it were
forced by the industry regulator to make a large capital investment and
substantial price cuts. It was then ordered to spend Pounds 1.7bn over
five years on water investments and cut prices by 12 per cent this year.
Nomura's plans for Hyder are unknown, but they are not thought to
include securitising the group's cash flow. The bank has made frequent
use of this financial mechanism in the past, but is now said to be
resigned to the fact that there may be no quick fix for Hyder.
The hiring of Mr Kinski to spearhead its bid may offer some clues to
Nomura's strategy, as he has earned a reputation as an eager cost
cutter.
Nomura is thought to be the only group interested in bidding for all of
Hyder. Offers by a rival utilities company would almost certainly be
referred to the Competition Commission.
A sale of Hyder's power distribution arm would have to be negotiated
with the group's bondholders as covenants require Hyder to retain 75 per
cent ownership of this asset.
LANGUAGE: ENGLISH
LOAD-DATE: April 17, 2000
Bottom of Form 1
FDIA: Need Another Player to Survive
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This is London April 17, 2000
THE battle of the DIY chains intensified today when under-siege retailer
Wickes dismissed the 'ludicrously low' 285 million hostile offer from
rival Focus Do It All (FDIA).
Wickes chief executive Bill Grimsey, launching Wickes's formal defence
document, said last month's 375p-a-share approach utterly failed to
value growth prospects and the work that management had already put into
turning it around.
He said: 'The board is determined that FDIA will not grab the benefits
of this investment at a price that completely fails to recognise the
excellent prospects of the business and the high strategic value of
Wickes in any process of industry consolidation.'
The management has given the chain a huge overhaul since it was hit by
an accounting scandal in 1996.
Grimsey added that venture-capitalist owned FDIA, which operates the
Focus and Do It All DIY chains, had failed to carve out a distinctive
niche of its own in an overcrowded market and needed to consolidate with
another player to survive. Wickes, by contrast, was one of the three
most powerful brands in the sector, dominating the heavy end of the
market.
However, FDIA chairman and chief executive Bill Archer said the defence
document failed to address the key issues and said shareholders should
accept the cash offer of 375p on the table rather than 'Wickes's
proposals for uncertain re-turns'.
He said: 'This does not answer the key question of where the share price
would be if there had been no offer.' He said the 375p represented a 56%
premium to the 240p level at which the shares had been trading before
the 30 March bid.
Grimsey dismissed the figure on the grounds that Wickes's share price
had averaged 336p over the past year when it had outperformed the retail
sector by 14%. He said: 'The significant value within Wickes has been
obscured in recent months by the illiquidity for smaller companies in
the stock market and the enthusiasm for 'new economy' shares.'
A merger of the two would create Britain's third-biggest DIY chain after
B&Q and Homebase. Wickes has 131 stores, while FDIA, - formed in 1998
when Focus owner Duke Street Capital bought Do It All from Boots - has
209 outlets. Wickes's shares fell 10p to 390p.
KWIK SAVE: Drop Sale, Buyer Failed to Generate Satisfactory Offer
-------------------------------------------
Financial Times April 17 2000
Somerfield, the UK supermarkets chain, has decided not to sell its Kwik-
Save division after talks with potential buyers failed to generate
satisfactory offers.
An announcement is expected on Tuesday. Somerfield began its effort to
sell Kwik-Save in November, two years after acquiring it. Offers had
ranged from about 75m to 90m ($119m to $142m).
Top of Form 1
SUNDAY TELEGRAPH(LONDON)
April 16, 2000, Sunday
SECTION: Pg. 01
LENGTH: 337 words
HEADLINE: City: Bank asks Simons to front Somerfield bid
Copyright 2000 The Telegraph Group Limited
BYLINE: by LAUREN MILLS
BODY:
DAVID Simons, who was last month ousted as chief executive of
Somerfield, has secretly been asked by Deutsche Bank, one of the
supermarket group's advisers, to reconsider a pounds 500m bid to take
the company private.
The revelation comes three weeks after Lady Patten, acting chairman
until John von Spreckelsen's recent appointment as executive chairman,
ordered Deutsche Bank to terminate discussions with potential bidders
which also included Kholberg Kravis Roberts and Nomura.
Simons is understood to be considering a management buy-in proposal,
where he would be reinstated as chief executive. The deal would be
backed by Apollo, the US venture capitalist, and Oaktree Capital
Management which holds a 3.65 per cent stake in Somerfield.
Retail sources say Apollo would be likely to bid about 100p per share
for the group, valuing it at pounds 500m. This is considerably less than
its indicative offer of 140p to 150p made before Christmas which was
rejected because Somerfield wanted to complete the sale of some larger
supermarkets and the ailing Kwik Save division.
Two weeks ago, Simons flew to the US to visit Apollo in Los Angeles to
discuss the details of a revised offer. Meanwhile, Apollo is believed to
be making approaches to US and UK investment banks to raise finance for
the deal. Provided Simons and Apollo can agree on a proposed deal, an
offer is likely to be made within the next month.
Somerfield is close to finalising an agreement to sell its Kwik Save
discount division to either Carlisle Group, backed by Barclays Private
Equity, or to PPM Ventures which is understood to have recruited
retailer John Lovering to its management team.
Recent changes at the group, including Von Spreckelsen's appointment and
the appointment of Alan Smith, former head of Punch Taverns, as chief
executive have failed to excite the City.
One retail observer said: "The shares have stayed down at about 55p and
the shareholders may well be tempted by a cash bid, regardless of who
runs the business."
LANGUAGE: ENGLISH
LOAD-DATE: April 16, 2000
Bottom of Form 1
LONDON TOWER: Casino in Knightsbridge is for Sale
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Electronic Telegraph April 18, 2000
LONDON Clubs International yesterday agreed to sell one of its London
casinos and admitted the deal would help pay for the escalating costs of
its Aladdin project in Las Vegas.
The casino operator is selling the London Park Tower casino in
Knightsbridge to leisure group Rank for an initial 14m, plus a further
1.75m depending on performance. Alan Goodenough, London Clubs chairman,
said that "it would be wrong to say we have done this to fund Aladdin",
but conceded: "We've had to come up with a lot of money for Aladdin and
we're rationalising where appropriate."
Mr Goodenough said costs on the Aladdin casino project had risen from an
initial $826m to "about $950m", but its partner, the Sommer Trust has
declined to put any more money in. Mr Goodenough: "The thing that has
caused us most disappointment is that our partner has refused to come up
with additional funds."
That has left London Clubs footing an extra $115m bill, though Mr
Goodenough said it now had 40pc of the equity, up from 25pc, and
management control. He said: "It's a big bet but big bets pay off big if
they come right and I'm confident Aladdin will succeed
NISSAN CAR: Struggling to Compensate for the High Value of Sterling
-------------------------------------------
Financial Times April 17, 2000
Nissan's car plant in north-east England is struggling to compensate for
the high value of sterling despite being Europe's most productive car
producer, John Cushnaghan, managing director of Nissan Motor
Manufacturing (UK) will warn on Monday.
The pressures on the plant's profitability are so great it is launching
a 30 per cent cost reduction programme, its most challenging ever,
further straining the UK's embattled automotive suppliers.
Mr Cushnaghan says the Sunderland plant, which employs 5,000 and
supports tens of thousands of UK jobs, is not at immediate risk.
But, to maintain the high volume output that underpins its success, it
is critical the plant wins from its Japanese parent the contract to
build the next generation Micra model, due to start production in 2003.
To do so, Sunderland must demonstrate a better cost base than its global
competitors within Nissan, irrespective of currency effects.
Nissan has already announced a global cut in parts and materials
suppliers from almost 1,200 to 600. It has a much greater choice of
suppliers, especially in Europe, following its alliance with French-
owned Renault. The new Micra/Clio will be the first Nissan/ Renault
product to share the same platform.
"These components will be sourced in huge volumes for both products on a
winner-takes-all basis - and the winners will be those suppliers who can
offer the lowest prices - quality and delivery will be taken as an
absolute given," Mr Cushnaghan will on Monday tell an automotive
conference in Sunderland.
"These choices will result in exposure to price-competitiveness so far
not experienced by many of our suppliers," he will add. "Many will
respond - and I fear that some may not."
Many UK suppliers would struggle to meet the Sunderland plant's new cost
reduction target, Mr Cushnaghan admitted, speaking before today's
conference. "I don't deny it's going to be very difficult," he said.
Some of the savings would come from increased volume but radical and
major cost reductions were necessary. He said he was not suggesting job
losses at the plant.
His prime objective had to be to maintain the Sunderland plant at its
present high volume level by winning the new Micra. "If it goes to Japan
the UK can't supply it," he said.
Mr Cushnaghan will tell the conference that the global automotive
industry's consolidation process is bringing one-sided risk, rather than
opportunities, to UK based manufacturers because of the "unsupportable
burden" of sterling.
European monetary union has happened, he will say, and is not going to
go away. "The UK now has the worst of all worlds" - it is outside a
major currency block, subject to exchange rate fluctuations at best and
a crippling exchange rate at worst, and has has interest rates twice its
major competitors.
"The present situation is a major threat to the current and future
competitiveness of British manufacturing industry," he will say.
NORWEB: United Utilities is Seeking Buyer for this Unit
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Top of Form 1
Copyright 2000 The Financial Times Limited
Financial Times (London)
April 17, 2000, Monday London Edition 3
SECTION: NATIONAL NEWS; Pg. 3
LENGTH: 749 words
HEADLINE: NATIONAL NEWS: Water companies struggle in wake of regulator's
price cuts: Falling revenues have yet to be offset by other ventures,
writes Andrew Taylor
BYLINE: By ANDREW TAYLOR
BODY:
Britain's water industry is facing its biggest challenge since it was
privatised just over a decade ago. Large price cuts imposed by the
industry regulator have left companies struggling to restructure balance
sheets and find new business opportunities.
Ministers, meanwhile, appear to have "gone lukewarm" on introducing
greater competition to a sector that looks set to continue to lag well
behind electricity and gas in providing customer choice.
Coming to the aid of Hyder, owner of Welsh Water, is the most immediate
challenge.
Kelda, formerly Yorkshire Water, has announced a strategic review and
parted company with Kevin Bond as chief executive following a 40 per
cent fall in the company's share price over 16 months.
Investor concerns have prompted the company to increase the coupon on
its recent Pounds 150m, 31-year bond issue. Kelda said it would raise
the coupon further if its credit ratings were cut sharply before October
2001.
Water companies complain they have been forced to cut prices by an
average 12.3 per cent from this month, reducing annual operating profits
by an estimated Pounds 800m-Pounds 850m.
Ian Byatt, the industry regulator who ordered the price cuts, expects
companies to reduce operating costs by an average of about 15 per cent
over the next five years to finance the reductions and help pay for a
Pounds 15bn capital investment programme.
Hyder is required to spend an estimated Pounds 1.7bn over the next five
years to meet UK and European Union water quality and environmental
standards.
Hopes that other businesses would offset falling regulated UK water
revenues have still to be realised. Investment in new businesses has
been expensive and has added to the problems of some companies.
Pennon, the south-west of England water supplier, blamed poorer-than-
expected profit growth prospects at its unregulated waste management
business, as well as enforced water price cuts, for its decision to cut
dividends by 25 per cent.
Concern has been expressed at the high prices recently paid for US water
businesses as utilities, including Kelda, have looked overseas to offset
UK price controls. Hyder's strained balance - net debt of Pounds 1.9bn
compared with a market capitalisation of just Pounds 363.5m on Friday -
reflects the cost of its Pounds 821m purchase of Swalec, the South Wales
electricity company, in 1996.
United Utilities, which owns North West Water and Norweb, is also paying
the cost of its ambition to become a multi-utility. The group is seeking
a buyer for Norweb's electricity supply business.
The options facing Hyder, the biggest private sector employer in Wales,
are stark: either an outright sale of the company, probably to an
overseas buyer, or a break-up of its water and electricity businesses.
Nomura International, the Japanese investment bank, is today expected to
make a takeover offer for Hyder, that is likely to be valued at close to
Hyder's end-of-week share price of 235p, valuing the group at about
Pounds 365m.
The US owners of South West Electricity - Southern Company and
Pennsylvania Power & Light - are separately considering making an offer
for Swalec's remaining power distribution business which has regulatory
asset value of Pounds 525m.
Hyder has sold Swalec's retail electricity supply business to British
Energy in a deal worth Pounds 180m.
Welsh politicians said they would seek assurances from potential new
owners that jobs would be safe. A spokesman for Paul Murphy, Welsh
secretary, said: "There is a concern that whatever happens the
headquarters should remain in Wales."
Kelda is considering changing its capital structure, separating its pipe
network from its retail supply business. The cost of funding capital
investment would be reduced by financing the infrastructure business
from debt, which is less expensive than equity.
Options could include selling physical assets or selling forward
revenues generated by the assets in return for an upfront payment. Kelda
would then reposition itself as a provider of operating services to
other utilities.
The government is unlikely to support industry consolidation by allowing
stronger groups to take over struggling suppliers.
Its consultation paper on water industry competition, published last
week, supports the restrictions requiring mergers between companies with
combined assets of Pounds 30m to be referred to the Competition
Commission. Nomura bid for Hyder; Kelda bond terms, Page 25
LANGUAGE: ENGLISH
LOAD-DATE: April 17, 2000
PHH UK: For Sale to Pay Down Debt
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Financial Times April 18 2000
Avis, the US car rental group, plans to sell the UK division of its PHH
international fleet management business to BNP Paribas in a deal worth
close to $1bn.
Sources close to the situation said BNP Paribas had agreed to pay $800m
in cash for PHH UK and would license some fleet management software from
Avis, adding as much as $200m to the deal. The sale is expected to close
near the end of the second quarter.
Avis plans to retain the vehicle management businesses PHH North America
and Wright Express, which it bought from Cendant Corp in June 1999 for
about $1.8bn.
Many thought Avis paid too high a price for the business at that time.
The New Jersey company had total revenues last year of about $4bn. It is
expected to use the proceeds from the sale of PHH UK to pay down debt
from the purchase of PHH.
BNP Paribas owns a fleet management business, Arval, and will license
PHH fleet-tracking internet-based software, which helps keep tabs on
cars, monitor maintenance schedules and even take care of fuelling.
Arval reported earnings last year of $83.5m, or $2.61 per diluted share.
SEVERN TRENT: Expected to Reduce Annual Profits by About 100m.
-------------------------------------------
Financial Times April 17, 2000
Severn Trent, one of Britain's biggest water companies, is to start
selling electricity and gas in the latest move by hard-pressed utilities
to diversify into other services.
The water company will on Tuesday announce that it is joining forces
with Amerada Hess, the US energy group, to offer electricity and gas to
its 3.5m household and small business customers. Severn already offers
fixed-price telecommunication services for small businesses.
Utilities hit hard by regulatory price cuts are seeking to replace
revenue by increasing the range of services they offer their customers.
A number of electricity companies offer telecommunication services using
power distribution networks to deliver communication and data.
Severn said it had decided to form a joint venture with Amerada, which
has 450,000 UK gas customers, mostly in south-east England, rather than
pay a high price to buy an existing retail electricity and gas supplier.
Attempts to create multi-utilities via expensive acquisitions during the
mid-1990s has undermined the balance sheets of Hyder, which owns Welsh
Water and South Wales Electricity (Swalec); and, United Utilities, which
owns North West Water and Norweb.
Severn says the cost of entering the energy market will be considerably
reduced by taking advantage of Amerada's proven billing and software
systems.
The water company, which has more customers than any single regional
electricity supplier, plans initially to sell power and gas to customers
in its local region covering nine counties in the Midlands and Wales.
Severn Trent was ordered by the industry regulator to cut water prices
by 14.1 per cent from this month, expected to reduce annual profits by
about 100m.
SUNLIFE UK: Losses of 126 million in 1999
-------------------------------------------
The Times April 18, 2000
SUN LIFE of Canada has given warning that its UK arm could be sold if it
fails to achieve a 15 per cent return on equity within two to three
years.
The notice to shareholders in Canada from Donald Stewart, the chief
executive, follows UK losses of 126 million in 1999. These were caused
mainly by provisions of 186 million to cover the pension mis-selling
review.
The company, which demutualised recently, is capitalised at about 2.8
billion and has a secondary listing in London. About 18 per cent of its
business comes from the UK, where it has funds under management of 13.3
billion and 600,000 policyholders.
Mr Stewart's warning comes as a report on the UK life industry, from the
independent analyst Cazalet Financial, said conditions in the UK market
would force a sale.
It points to comments in the company's demutualisation prospectus as
evidence.
The prospectus said: "There can be no assurance that prior or current
financial or operational issues or difficulties of the UK operations
will not give rise to further material losses. In addition, there can be
no assurance that steps taken by the company can be implemented
effectively in the near-term or will be adequate to deal with these
issues and difficulties."
The Cazalet report said: "Expect Sun Life of Canada's UK non-group long-
term businesses to close and be sold to a 'vulture fund', leading to the
sale/transfer of the sales force."
But a spokesman for Sun Life of Canada insisted the UK operation could
be made profitable. He said: "The losses in the UK were caused mainly by
provisions for things such as the pension review. We know what our
targets are. They are set realistically and we expect to achieve them."
In the year to 1999, the company managed an equivalent return on equity
of 11.2 per cent.
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