Japan's Tankan Meets Expectations; Elf Aquitaine, General Nutrition Get Takeover Bids

The survey of Japanese business sentiment seems likely to keep rates low, and Total Fina's bid for Elf Aquitaine ignited European trading.
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While you were barbecuing (or, if you live in the Northeast, either cranking the AC or putting yourself on ice), overseas markets were whooping it up on takeover talk in Europe and an in-line

tankan

-- the

Bank of Japan's

quarterly survey of business expectations.

The tankan goosed Japan's stock market because fear had been running high that the report would be stronger than the average forecast, leading the Japanese government to abandon its policy of trying to revive the economy by keeping interest rates close to zero.

Released Monday morning in Tokyo, the tankan

found that while more businesses continue to rate business conditions unfavorable than favorable, the difference is narrowing. The report's headline number, the business conditions index for large manufacturing enterprises, improved to negative 37 for the June quarter from negative 47 for the March quarter. Economists surveyed by

Reuters

had forecast an average reading of negative 36.

The last positive reading from that index came in September 1997.

"The tankan confirms that the Japanese economy clearly appears to be pulling out of the worst, coming, as it does, after the recent releases of relatively firm

GDP

figures for the January-March quarter," T. Nishizawa, an economist with

Nomura Securities

in London, wrote in a research note. Japan shocked the financial markets on

June 10 with the news that its economy had grown at a 1.9% rate during the first three months of the year. "The outlook once again confirms a scenario of corporate earnings recovering in the second half of the fiscal year through the effects of restructuring," Nishizawa added.

But, he said, zeroing in on the report's key market implication, "It appears unlikely that the

Bank of Japan will change its ultra-low interest-rate policy in reaction to these tankan results."

That view is widespread among Japan economists, and if it needed confirmation, the Bank of Japan provided some immediately after the release of the tankan by intervening in the currency markets to weaken the yen for the fifth time since the GDP release.

Traders who expected a better reading from the tankan thought the yen would rally against the dollar upon its release, so they were short dollars. When the dollar moved higher in response to the tankan, many were forced to buy back their dollars. The Bank of Japan aided the dollar's cause by buying $3 billion to $5 billion,

Bloomberg

estimated. The intervention helped boost the dollar to 122.37 from 120.97 on Friday in what Nishizawa called "a sign that the authorities do not take an excessively optimistic view of the prospects for the economy." A weak yen promotes economic recovery by keeping Japanese products affordable in other markets.

The report helped drive Japan's

Nikkei 225

benchmark stock index to its first close over 18,000 since Sept. 25, 1997. The Nikkei rose 202.59, or 1.1%, to 18,135.06.

The other major Asian indices also enjoyed monster rallies to their best levels in over a year and a half. Hong Kong's

Hang Seng

tacked on 322.16, or 2.3%, to 14506.74, and South Korea's

Kospi

added 29.42, or 3.2%, to 962.84.

There was euphoria in Europe, too, Monday, though it had more to do with merger activity, actual and rumored.

The actual big deal is a $43 billion unsolicited bid by French oil giant

Total Fina

(TOT) - Get Report

for its smaller rival

Elf Aquitaine

(ELF) - Get Report

. The deal, which would give Elf shareholders four Total Fina shares for every three, values the company at a 15% premium over Friday's close. Elf shares rose 21% in European trading.

Meanwhile, shares of Britain's

Cable & Wireless

(CWP)

rose on a

Sunday Times

story saying that

Deutsche Telekom

(DT) - Get Report

,

France Telecom

(FTE)

,

Bell Atlantic

(BEL)

and

SBC Communications

(SBC)

"are all believed to have made informal approaches in recent months to sound out C&W about a deal."

Amid the chatter, all three major European indices rose by more than 1%. London's

FTSE 100

rose 100.10, or 1.5%, to 6,592.00. The French

CAC 40

added 77.17, or 1.7%, to 4697.84. And the German

Dax

tacked on 106.57, or 1.9%, to 5625.62.

In U.S. company news,

General Nutrition Co.

(GNCI)

received a $1.7 billion cash bid from

Numico

, a Dutch foods group. The bid represents a 9.3% premium over Friday's closing price of 22 7/8.

In the papers...

This week's edition of

Barron's

features a kindly view of

Nautica

(NAUT)

; a feature on

General Motors

(GM) - Get Report

making much of

Sanford Bernstein

auto analyst Gary Lapidus's opinion that the company could double its share price via a big share repurchase program funded by a spinoff of its interest in

Hughes Electronics

(GMH)

; and a piece that wonders, based on activity in the corporate bond market, whether

BellSouth

(BLS)

is eyeing

Paging Network

(PAGE)

.

The

New York Times

Money & Business

section takes a long look at

America Online

(AOL)

. The company is aiming to double its current subscriber base of 17 million over the next five years or so, and to more than triple average daily usage to three hours a day, the

Times

says. If the company succeeds, the paper says AOL CEO Steve Case "may be able to fulfill yet another ambition: for AOL to be the most valuable company in the world" by market cap. AOL is currently about a quarter the size of

Microsoft

(MSFT) - Get Report

, the leader in market cap at about $470 billion.

Finally, if you didn't catch Monday's

Times

,

Sun Microsystems

(SUNW) - Get Report

CEO Scott McNealy had this to say on the op-ed page: "At least Silicon Valley makes something. Wall Street brokers, lawyers and career politicians have what I call nonjobs. They don't make anything other than money. Brokers don't make the pie any bigger; they just take a piece for themselves."