The Telegraph
Since 1st March, 1999
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Bidding battle over Lyonnais

Paris, Nov. 26: Shares of Credit Lyonnais soared on Monday as investors gambled that a bidding war over the bank was in the offing.

The finance minister, Francis Mer, said Sunday that BNP Paribas was the high bidder for the government’s 10.9 per cent stake in Credit Lyonnais, offering $ 2.2 billion, or 58 euros ($ 58) a share, a 49 per cent premium over the closing price on Friday.

The purchase, which will make BNP Paribas the biggest shareholder in Credit Lyonnais, raised speculation that it or another bank would soon bid to take over Credit Lyonnais entirely.

Investors sent shares of Credit Lyonnais up sharply, and shares of BNP Paribas down, because of the high premium. At one point Credit Lyonnais shares were up 30 per cent in Paris; they closed with a 20.5 per cent gain, at 46.92 euros. BNP Paribas shares fell 7 per cent in Paris, but the bank's American depository receipts gained slightly on the day.

Philippe Annamayer of Schroder Salomon Smith Barney, echoing other analysts, said in a note to clients that BNP's bold move could have “dramatic consequences on the consolidation of the French banking sector” over the next year.

BNP’s chairman, Michel Pebereau, told reporters over the weekend that BNP wanted a “close dialogue” with Credit Lyonnais but would not start talks on a more formal combination, at least for the moment.

But earlier this year, Pebereau said he planned to spend roughly $ 9 billion over the next four years on acquisitions.

Last year, BNP paid $ 2.4 billion for the United California Bank and agreed to buy the 55 per cent of the BancWest Corp. of Honolulu that it did not already own.

The French finance ministry had been in talks to sell its stake in Credit Lyonnais to Credit Agricole; when the talks broke down, it organised a snap auction of the shares. The ministry said it was now up to Credit Lyonnais and its shareholders “to come up with the best plan for the company”.

For the moment, the big loser appeared to be Credit Agricole, which used a complex flotation of some of its shares late last year to raise cash, a move interpreted by analysts as preparation for a bid for Credit Lyonnais.

Credit Lyonnais recently emerged from a long and painful turnaround after suffering huge losses in the 1980s and 1990s because of mismanagement and loan losses. As a measure of its recent success, Jacques-Henri Gaulard of Merrill Lynch noted in a bullish letter to clients last week, Credit Lyonnais posted “the best structure of returns of its peer group”.

Credit Agricole’s chief financial officer, Gilles de Margerie, said on Monday that the bank was still interested in “a friendly link-up” with Credit Lyonnais. But he told investors on a conference call that price was an issue and that he was “very struck” by the amount BNP paid.

A bid by BNP for all of Credit Lyonnais would send tremors through European banking, which has been calm lately. It would be complicated by an intricate pact that unites a core group of Credit Lyonnais shareholders, including Credit Agricole and the insurance group AXA of France and Commerzbank of Germany.

The pact requires members of the group to offer their shares of Credit Lyonnais to other members first before selling to anyone else.

In 1999, in a bitter three-way battle that shocked the French banking world, Pebereau, then chairman of BNP, first thwarted a merger of Paribas with his bank's rival, Societe Generale, and then seized Paribas.

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