Take some profits on oil stocks (page 2 of 2)

Johnson Controls also sold its French spark-plug unit Eyquem, which it recognises as a non-core asset, to its German competitor Beru for an undisclosed amount. This unit is expected to generate sales of USD 23.5 million for this year.
We reiterate our buy recommendation on Johnson Controls.

European equities

The French drug maker Aventis SA (AVE_FP, EUR 48.38, CSFB: Outperform) and its rival Andrx Corp. (ADRX_US, $22.94, CSFB: Not rated) were turned down by an appeals court over the accusation that both companies improperly conspired to have delayed the market entry of generic versions of Hoechst AG's cardio-vascular drug Cardizem back in 1997.

Two years later Hoechst and Rhone-Poulenc SA merged to create Aventis. Hoechst agreed to pay USD 90 million to Andrx between 1998and 1999 in order to delay the marketing of a cheaper version of Cardizem. Cardizem reached peak sales of USD 810 million in 1998, before generic competition started to erode sales.

Both companies have settled lawsuits in this regard and will pay damages to the patients, insurer and wholesaler who were denied access to the cheaper version of the drug. The reason why the two companies continue to fight the decision by the appeals court is that there are still some smaller suits open. And the US Federal Trade Commission, which said that the Hoechst-Andrx agreement didn't delay the marketing of generic alternatives, has cleared the two companies. We are keeping an eye on the progress of this legal battle, but we do not expect any material effect on Aventis, for which we reiterate our buy rating.

The steel maker Arcelor SA (LOR_FP, EUR9.74, CSFB: Outperform) confirmed to the French newspaper 'Les Echos' its objective to achieve EUR 300 million in merger related synergies, from the merger between Usinor, Aceralia and Arbed by the end of this year, and of EUR 700 million by the end of 2006. The company according to 'Les Echos' has already achieved EUR230 by the end of March.

Arcelor's CEO in another report said that he expects to cut production by 10% in order to bolster prices. The company has already raised prices twice this year as it lowered output.
Steel prices are under pressure from cheap imports and from slow domestic demand.

However the market welcomed the news from Arcelor, sending the stock 2.14% higher on that day. The achievement in synergies also gives us a good level of confidence that Arcelor has reached the trough and should be bound for a recovery. We continue to see the stock as a long-term buy, which in addition pays an attractive dividend yield of 3.77%.

The Dutch phone company Koninklijke KPN NV (KPN_NA, EUR 5.74, CSFB: Outperform) is being sued for GBP 150 million (EUR 212.7 million) by Hutchison Whampoa Ltd. over non-compliance to an agreement regarding a joint venture between the two companies. Hutchison accuses KPN not to have paid its share of 1 billion GBP to the venture, Hutchison 3G U.K., as a board's request asked it to do so in March this year. The venture is owned to 65% by Hutchison Whampoa, to 20% by NTT DoCoMo Inc. and to 15% by KPN.

KPN claims that the board's request was not valid and refuses to comment the issue, as it believes that in fact Hutchison is in breach of the shareholders agreement and asks Hutchison the buy KPN's stake for 140% of its fair value. KPN bought a 15% stake in Hutchison 3G U.K for GBP 900 million after Hutchison acquired the license for the high-speed telecom networking service in 2000, but last year KPN wrote off EUR 1.17 billion of the stake value.

So far few details have been disclosed, as the court proceedings have just begun. And it is too early to exactly quantify the material impact of the lawsuits, but it gives the impression that KPN would seek somehow to find an exit from the unprofitable Hutchison 3G U.K venture, which we would see as a positive. The venture is fighting the strong competition from larger rival Vodafone. We maintain our buy on KPN.