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The Great European Sell Off, Part Two


International Business

THE GREAT EUROPEAN SELL-OFF, PART TWO

Serge Tchuruk, the engineer who heads France's oil and gas giant Total, recently got a nice present from the French government. In late June, it sold more than $1 billion of its Total shares, retaining only a token 5% holding. For the first time in Total's 68-year history, the company's board will not be automatically dominated by government nominees. "Now we can be substantially more flexible," says Tchuruk.

Across the Alps, a similar scenario is about to be played out. Next month, Italy's ENI, an energy and chemicals giant with $41 billion in sales last year, will be transformed from a government entity to a joint stock company. That will pave the way for ENI to sell off pieces of itself to the public later in the year. Then, says ENI President Gabriele Cagliari, "we'll finally be able to measure ourselves against the market."

All over Western Europe, privatization is suddenly getting a second wind. But this time it's a far cry from the ideology-based sell-offs spearheaded by an iconoclastic Margaret Thatcher 10 years ago. Now, stiff new competition rules laid down by the European Community mean that state-owned companies, once cosseted, can no longer rely on government handouts to finance growth. The Europeans also are hoping privatization can help fight off stiff new competition from the U.S. and Japan.

RICH PROCEEDS. One more spur: European governments are more money-hungry than ever. Examples include Germany, reeling under $60 billion in direct unification costs this year, and Italy, now heading for a record $130 billion budget deficit. Rather than deepen deficit spending to fund expensive social programs, governments are cashing in their corporate assets (table).

That's something France's Pierre Beregovoy had in mind when he took over as Prime Minister in early April. His first order of business was to tackle France's formidable 10% unemployment rate. But as a firm believer in the strong franc, he was unwilling to borrow to finance job creation. Instead, he's using proceeds from state sell-offs. With the $1 billion Total offering, he reached more than half of his goal of raising $1.9 billion from share sales this year. An additional $450 million or so is likely to be raised from the sale of a life insurer, Paris-based Caisse Nationale de Prevoyance, later in the year.

French privatization will pick up sharply if, as polls suggest, conservatives win big in elections to be held next March. Right-wing politicians are certain to privatize many of the 10 big industrial companies and several banks and insurance firms that remain in state hands, including such powerhouses as Air France and steel giant Usinor Sacilor.

That's a rich trove. A conservative French government, estimates Shearson Lehman Brothers Inc., would sell about $60 billion worth of state holdings over a five-year period. And even if the Socialists manage to squeak back in, the party is now on record as backing total privatization. "The French Socialists," says Antoine Jeancourt-Galignani, chairman of Banque Indosuez, "are giving up everything they have been worshiping."

Italy has dragged its feet on privatization, but its fire sale could ultimately top France's. Besides ENI, the vast state holdings include most commercial banks, food companies, chunks of heavy industry, and Italian railways. The companies have been a rich source of patronage and favors for Italian political parties while absorbing $36 billion in annual subsidies over the past decade, a record in Europe, according to the EC.

PRESS AHEAD. The new Italian government headed by Socialist Guiliano Amato needs cash as quickly as possible. Italy's budget deficit has ballooned this year to a disastrous 11% of gross domestic product. Although the sell-offs could be stalled by disputes over legality, the government might raise as much as $10 billion next year, according to government economists. ENI, for example, is already planning to spin off about 10% of Agip, its $8 billion oil and gas unit, in a deal put together by Goldman, Sachs & Co. and Swiss Bank Corp. The sale may raise up to $2 billion.

The German government also controls large swaths of the economy, from Lufthansa to dozens of banks to the federal railroad system. But it, too, is feeling the pressure to move forward on privatization. With Bonn expected to run a $28 billion deficit this year, Finance Minister Theodor Waigel, for one, wants to press ahead with the privatization of Telekom, the powerful telecommunications unit of the federal postal service.

As the pioneer, Britain has cleared the shelves of much of its state holdings--some $70 billion worth in the past decade. But such leftover giants as British Rail and British Coal will eventually go on the block.

In the meantime, the British are trying to sell their privatization knowhow to their Continental cousins. One tactic: educational cruises. On a recent sunny Sunday, such leading London experts in privatization as Coopers & Lybrand and Barclays de Zoete Wedd pitched sell-offs to top Italian business chieftains during a day-long cruise up the Italian coast on Queen Elizabeth II's yacht. Judging by what's on Europe's privatization plate, British experts stand to be busy well into the decade.A MENU OF STATE SELL-OFFS

BRITAIN

Winds down Europe's biggest privatization program with proposals to sell off

British Coal and British Rail

FRANCE

Raises $1 billion from sell-off of oil group Total to help finance job

creation. Similar sales may include such major companies as Air France,

Renault, Thomson, Pechiney, and Elf-Aquitaine

GERMANY

Pushes to speed up sales of government stakes in more than 100 companies from

Lufthansa to regional banks and airports

ITALY

Targets key state companies including energy giant ENI for privatization to

help reduce its chronic budget deficit

DATA: BW

John Rossant in Rome, with Stewart Toy in Paris and Igor Reichlin in Bonn


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