Enough Euro Spin Offs To Make You Dizzy

Europe's giants are using them to raise cash and gain focus

With annual sales of $14 billion, German logistics supplier Stinnes is bigger than Lufthansa. But you can't buy Stinnes' stock. The company is a division of Dusseldorf-based conglomerate Veba, a corporate drop in the bucket of Veba's vast utility, oil, and chemical holdings. That's about to change. Later in 1999, Veba plans to list Stinnes on the Frankfurt exchange, raising an estimated $3.3 billion.

Stinnes' listing is just the latest in a wave of spin-offs by European companies. Big names such as DaimlerChrysler, Siemens, and British retailer Dixons have sold units on the stock exchange or are planning to. Others, including Commerzbank and detergent maker Henkel, are thinking about it. France's Alcatel has unloaded an entire portfolio of companies, from magazines to vineyards, since Chief Executive Serge Tchuruk took over in 1995. It is now angling to dump its share of state-controlled nuclear energy company Framatome.

The corporate sell-off is more evidence that Europe's largest companies are trying to boost shareholder value by focusing on their core businesses. And it could sound the death knell for Europe's grab-bag conglomerates. "Ten years ago, companies tried to become independent from economic cycles by diversifying," says Walter Schmidt, president of Gerling Investment, a Cologne fund manager. "Spin-offs are the new wave."

TOP DOLLAR. Europe's love affair with technology stocks is helping drive the spin-off craze. Companies know they can get top dollar for their high-tech units now, with Frankfurt's tech-heavy Neuer Markt up 54% in the past six months. The high-tech spin-offs can then offer their managers and engineers stock options with growth potential. That's one reason Siemens is spinning off its semiconductor unit, under the name Infineon.

For similar reasons, chemical giant Bayer is selling its Belgium-based AGFA unit for an expected $3.9 billion. Best known for photographic film, AGFA gets most of its sales from digital imaging products such as medical scanners. DaimlerChrysler has spun off its 10% stake in fledgling phone network debitel.

Spin-offs often give the parents' finances a shot in the arm. Plans to sell AGFA helped push up Bayer shares 22% in the past three months. A spin-off can help build a war chest for acquisitions. And it can free the newly independent unit to do business with competitors. For example, Henkel, known for detergents and adhesives, is creating a separate legal entity for its specialty chemicals business--the first step to spinning it off. The unit wants to develop products for Henkel rivals but must reassure customers it won't betray secrets to Henkel.

To be sure, spin-offs may soon find it harder to grab investors' attention, because household names such as Deutsche Bank and Volkswagen are planning to sell billions of new shares. Meanwhile, some 100 initial public offerings are expected this year on the Neuer Markt. "It's a lot for the market to digest," says Ulrich Reitz, a fund manager at Frankfurt Trust Investment. Already, there have been signs of market fatigue. DaimlerChrysler's Debitel was sold to investors at $32.86 per share and promptly slumped to just under $29 after trading began on Mar. 29.

Still, with Europe's benchmark interest rate at just 2.5%, thousands of Europeans are looking for better returns than they can get from their savings passbooks. And amid record-low bond yields, insurance companies are shopping for better ways to invest. Foreign investors, too, are looking for an alternative to expensive U.S. shares and risky Asian ones. That demand could keep the spin-off craze going strong for months.

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