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BUSINESS/BIZ WATCH | MARCH 9, 1998 VOL. 151 NO. 10 |
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Biz Watch By BRUCE CRUMLEY, THOMAS K. GROSE AND NINA PLANCK PRIVATIZATION--FRENCH STYLE France's leftist Government revealed long-awaited privatization plans for national flag carrier Air France, but dismayed analysts and potential foreign partners by insisting the state will retain a majority stake in--and therefore management control of--the airline. The plan calls for a June sale of 20% of Air France, with 17% available to the public and 3% to employees. Another 12% will be allotted to pilots and executives in exchange for wage decreases of 15%. The equity sale, which values Air France at $3.3 billion, and future share distributions should ultimately lower the state's present 93.5% stake in the carrier to 53%. Membership in a strong alliance with major foreign carriers is seen as critical for long-term survival. But the privatization terms may leave current and potential industry partners like Delta and Continental skeptical of extensive operational links with Air France because they fear it is vulnerable to tampering by a French government notorious for acting on state rather than commercial interests. POWER SHARING WAS THE POISON PILL It was to have been the biggest merger in corporate history, creating a colossus with a market capitalization of $205 billion, second only to that of General Electric. In the end, the mega-company that British pharmaceutical giants Glaxo Wellcome and SmithKline Beecham planned wasn't big enough to accommodate the egos of their top executives, Sir Richard Sykes and Jan Leschly. Last week, friendly talks between the two companies broke off in acrimony, reportedly over an inability to agree on a power-sharing arrangement between the chief executives. The news stunned financial markets, which had boosted the pair's valuations nearly 20% since merger talks began Jan. 30. After the deal fell apart, Glaxo's share price initially plunged 13% to $27, while SB's dropped 10.3% to $11.80--wiping out a total of $21.3 billion of the companies' value. Glaxo's price recovered to $28.41 and SB's to $12.62, mainly on the strength of hot rumors that Glaxo would mount a hostile bid for SmithKline. For SmithKline, the talks' collapse was not only expensive, but embarrassing. Close to a merger with American Home Products, it left AHP at the altar to elope with Glaxo. This merger was meant to herald a new round of matchmaking in the pharmaceutical sector. That may still occur, as pressure for consolidation remains. The industry is very fragmented-- leader Merck & Co. has just a 4.6% share of the world market. In a business driven by R. and D., bigger companies can devote more money to discovering new drugs. SmithKline, twice-bitten, can't be shy. It needs to find another partner--and soon. But given the recent messy breakups, it may have a hard time sweet-talking any other rivals. WILL ASIAN WINDS COOL THE TORRID U.S.? The effects of the Asian economic collapse have scarcely been salutary--or subtle--for Asians, but its influence on the torrid U.S. economy may be just perfect for the exquisitely nuanced purposes of Alan Greenspan. In his semiannual report to Congress, the U.S. Federal Reserve chairman suggested that "storm clouds massing over the Western Pacific and headed our way" might dampen demand for U.S. goods and services just enough to relieve inflationary pressure--and render unnecessary a Fed hike short-term rates. After an eight-year expansion--with 3.9% growth in 1997--inflation hawks like central bankers usually want to hit the brakes.' But the Fed hasn't raised rates since March 1997, and Greenspan suggested that countervailing forces like the Asian crisis were so "finely balanced" that Fed moves either way could be premature. He also stressed the unusually favorable features of the current expansion. Productivity gains enable businesses to pay higher real wages yet increase profits. Still, the chairman warned that no one should count on rapid growth and low inflation to continue. At this stage in the business cycle, said he, bankers making loans and investors buying stocks overstretch themselves "all too often."
TITANIC SUCCESS In less than ten weeks Titanic from 20th Century Fox has become the biggest grossing film worldwide at-- $919.8m
Jurassic Park (1993) Universal/UIP-- $914.3m Source: Screen International
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