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Business Watch

Company news from Europe’s big corporate players

AVIATION – BA and Iberia step closer to merging
British Airways and Spanish Iberia are in talks about a possible all-share merger. Under the proposed deal, a new holding company would acquire both airlines and the existing companies would operate autonomously. BA acquired a 9% stake in Iberia in 1999 and recently increased its shareholding to 13.15%. In July, Iberia acquired a 2.99% direct shareholding in BA and an interest in a further 6.99%. Willie Walsh, BA chief executive, said in a statement: “The combined balance sheet, anticipated synergies and network fit between the airlines make a merger an attractive proposition, particularly in the current economic environment”. Fernando Conte, Iberia chief executive, said a merger “would also strengthen the Oneworld alliance and further develop Madrid’s position as the European gateway to Latin America”. The UK carrier held takeover discussions with Iberia last year, as part of a consortium led by US private equity group TPG, but they were ended by Spanish bank Caja Madrid, which holds a 22.9% stake in Iberia.

MEDIA – French trial for paper-free newspapers
Seven French publications – including Le Monde, Le Figaro, Le Parisien, Libération and Les Échos – have partnered with France Télécom to test Read & Go, a digital reading device that claims to offer the world’s most convincing electronic facsimile of an ordinary newspaper. A 120-person test panel has been given the device, allowing them to download the contents of participating newspapers via France Télécom’s wireless network. Certain books and other content are also available. Unlike other digital-reader newspapers available elsewhere on the planet, Read & Go is not restricted to editorial content. Uniquely, it can also carry ads – currently sample ads from France Télécom’s consumer brand Orange. The device displays links to the participating publications, featuring black-on-grey type and images that mimic the appearance of newsprint. If successful, the service could be launched nationally next year. At which time France Télécom and the newspapers will jointly sell ads and split revenues.

AUTOMOTIVE – Russia overtakes Germany in car stakes
According to PricewaterhouseCoopers (PwC), Russia has overtaken Germany to become Europe’s largest car market. PwC says 1.645 million new cars were registered in Russia in the first half of 2008, compared with 1.63 million in Germany: “The Russian auto market is still witnessing an astonishing growth,” the report concludes. PwC notes that during the first half of 2008, unit sales grew by 41% on the same period in 2007. Sales of foreign brands have increased by 47%, according to the Association of European Businesses in Moscow. Stanley Root, leader of PwC’s automotive practice in Russia, said: “The latest figures for the Russian car market are the most interesting I’ve ever seen… The news is that growth continues as strong as ever”. PwC predicts the Russian market will reach between 3.6 million and 3.8 million cars in 2008. By comparison, sales in Western Europe are growing at less than 5% a year.

FINANCE – KKR to finally float in New York
Kohlberg Kravis Roberts, one of the world’s largest private equity firms, is finally going ahead with a long-awaited flotation in New York, in a deal expected to value the firm at up to $15bn (€9.6bn). KKR, whose record $31bn takeover of RJR Nabisco was captured in the bestselling Barbarians at the Gate, owns Alliance Boots, the chemist chain that was the focus of an £11bn takeover last year. The firm will be listed via a two-part transaction under which it will buy out KKR Private Equity Investors, the investment fund that it floated on Euronext Amsterdam in 2006. Shares in KKR Private Equity Investors have fallen from the $25 issue price to around $10 (€6.50).

TELECOMS – New pressures on file-sharers
Civil liberty groups claim the “telecoms package” due before the European Parliament this month will lead to the loss of individual freedom on the internet and breach human rights. French and Swedish pressure groups say the powers would allow governments to force internet service providers (ISPs) to hand over information about their customers to the police. They claim three amendments will remove immunity enjoyed by ISPs in regard to material passing through their networks; legislation could include a three-strikes-and-you’re-out sanction to stop illegal downloading. In July, the UK government announced an agreement with ISPs for a draft bill about file-sharing. The government wants ISPs to adopt a code to try to combat the problem but objectors say it would force ISPs to break their obligations to their users.

PHARMACEUTiCALS – Drug firms in possible merger
Roche, the Swiss pharmaceutical company, has made an offer of $44bn (€28bn) for the 45% of shares it does not already own in California-based Genentech. The move came after the world’s biggest generic company, Israel’s Teva, agreed to buy New York-based Barr for almost $7.5bn. If successful, the Roche deal will be the biggest ever in the biotechnology industry. Franz Humer, the Roche chairman, said that it was time to put the partnership “on a new level.”

AUTOMOTIVE – Schaeffler bids to put air in Conti’s tyres
Hostile takeover-adverse Germany is still reeling from the €11.2bn bid the Schaeffler Group, the family-owned ball-bearing maker, has made for a controlling stake in automotive parts and tyremaker Continental. Schaeffler, owned by Maria-Elisabeth Schaeffler, the billionaire widow of its founder, is only a third of the size of Continental. If successful, the deal will create the world’s biggest car components company. Another huge dimension to this story is that, in July, Maria-Elisabeth Schaeffler secured secretly 36% of Conti’s shares. Schaeffler needs to grow and diversify into electronics if it is to keep up with car industry developments and Continental’s specialist electronics division VDO, which it bought for €11bn last year, is developing the next generation of electrically powered cars. At press time, however, Continental said the bid undervalued the company.

AVIATION – Ryanair announces risky price strategy
Europe’s biggest budget airline Ryanair has begun a high-risk price war, which will plunge it into the red this year in an attempt to drive competitors out of business. In May, Ryanair announced that its fares would have to rise by 5% to cope with the sustained high price of oil but that has been reversed and fares will now fall by 5%. Ryanair said that the price war would result in a loss of up to €60m this year, compared with a profit of €481m last year. Profits fell 85% in the first quarter to €21m as the airline’s fuel bill nearly doubled. The airline’s decision to maintain market share at the expense of profitability stunned the markets and the airline’s share price fell 20% to €2.58. Ryanair will reduce capacity at Stansted and Dublin airports this winter but still plans to grow by 14% this year. The airline hopes that bankruptcies elsewhere will create new opportunities and it is talking to airports about starting operations should rival carriers be forced to shut down.

FINANCE – GE & Mubadala join forces in Mid East
General Electric is teaming up with a sovereign wealth fund in Abu Dhabi to create an $8bn (€5.1bn) commercial finance fund based in the Middle East. The Abu Dhabi government-owned Mubadala Development Company and GE will each invest $4bn (€2.55bn) in equity in the fund over the next three years. Mubadala also plans to become a major stockholder of GE, by buying shares on the open market. The companies also plan to develop a research centre for clean energy and water, and expand GE’s aircraft maintenance and repair services in the Middle East. Mubadala says it intends to invest up to $200m (€128m) in GE Industrial Investment Partners, a partnership that will provide capital to healthcare, energy and transportation companies. GE’s 2007 revenue in the Middle East was more than $5bn (€3.2bn), 50% more than 2006; it expects it to reach $9bn (€5.78bn) by 2010.

RETAIL – Mango makes move into Iraq
Barcelona-headquartered fashion chain Mango is setting up shop in the city of Arbil in the northern Kurdish region of Iraq. Lebanese designer Zuhair Murad, who has collaborated with Mango since 2006, believes this is a perfect outpost to sell his signature ruffled tunics and flowing shapes. Around 30% of Mango’s products sold in the Middle East are designed specifically for the region and Murad’s collections are only available in Arab countries. Mango has 1,144 stores in 90 countries, but the Middle East is an increasingly important market, accounting for 13% of group revenues, or €1.33bn, in 2007. The group has 84 stores in the region, including in Saudi Arabia, Dubai and Israel and it plans 22 more this year. Mango recently launched a menswear collection called ‘Mango He’. The first Mango He store opened in Ankara, Turkey, and the collection will be in larger stores worldwide.