December 2002
Battle royal verges on full-scale war
France
BNP Paribas' e2.2 billion successful bid for the
French government's remaining 10.9% stake in Crédit Lyonnais
has set up a battle for control of the former state-run
bank.
By bidding so aggressively, Michel Pébéreau has shown the world
that he's in fighting mode. He's not the only one.
Crédit Agricole and Société Générale are also interested in
winning Credit Lyonnais' hand. Indeed, the reason for the flotation
of Crédit Agricole - which is the central bank for a network of
regional branches - was to give it an acquisition currency. The
question now is whose currency will prove most acceptable to Crédit
Lyonnais shareholders when the bidding starts in earnest next
year.
Crédit Agricole was the favourite to win the stake that would have
given it a 20% share of Crédit Lyonnais and a significant advantage
in the race to become its owner but it slipped up and bid too low,
not realizing the strength of its competitor's hand. "The most
likely outcome is a takeover battle for Crédit Lyonnais," says
Romain Burnand, JPMorgan's French banks analyst. "All the players
in this are now likely to be reviewing their positions."
They have seven months before it becomes a free-for-all. That's
when the shareholder agreement runs out which the French government
put in place for two years when it privatized Credit Lyonnais in
1999. It was extended in 2001 to give strategic shareholders the
right of first refusal should any of the others want to sell their
stakes.
|
Stakes in Credit
Lyonnais |
|
| Shareholder |
Percentage |
| BNP Paribas |
11+ |
| Crédit Agricole |
10.0 |
| AGF/Allianz |
10.0 |
| Axa |
5.3 |
| Commerzbank |
3.9 |
| SocGen |
3.9 |
| Intesa BCI |
3.9 |
| BBVA |
3.9 |
|
Source: various market
sources |
|
Several of the strategic shareholders - including
Commerzbank, BBVA and Intesa BCI - own stakes for purely
financial reasons and are likely to be among the first to
sell. But for the French banks Crédit Lyonnais is a prize
worth having. Allianz is also rumoured to have been a bidder
in the auction through its French subsidiary AGF but it's
difficult to see that this would be quite so compelling to
shareholders.
Crédit Lyonnais ended up in the hands of the government in the
first place following bad lending and investment decisions that
almost pushed it into bankruptcy. Between 1992 and 1994 it lost a
total of Ffr21 billion (e3.2 billion) and the state had no option
but to bail it out or watch it collapse.
Today the bank is in infinitely better shape. It has good cost
control and low provisions and is massively weighted towards
domestic retail banking, which comprises 51% of its overall
operations. In fact it is one of only two or three banks in Europe
to report a growth in profit before provisions. Two others are
Spanish bank Popular and highly regarded Italian institution
UniCredito.
It's easy to see why Crédit Lyonnais is such a valued asset. But
did BNP Paribas pay over the odds for it? Pébéreau told Euromoney
when we met him in April that he had a war chest of funds because
the investment bank generates e1 billion to e1.5 billion of free
cashflow every year. But he also made it clear that he was not
prepared to overpay for acquisitions.
He's stuck to that in the past, acquiring Peregrine in Asia at the
depths of the crisis there in 1999, and last year Consors, the
electronic broker owned by the German Schmidtbank, which had to be
bailed out by a consortium of banks. If Pébéreau hasn't exactly
broken his own rules buying the stake in Crédit Lyonnais, he's at
least stretched the definition of not overpaying.
At e58 a share, the price is definitely borderline. For one thing
it's a 49% premium to the previous day's Crédit Lyonnais share
price. BNP Paribas has also spent in one shopping trip virtually
all of the e2.6 billion profit it made in the first nine months of
2002.
That BNP Paribas was prepared to pay so much at the auction shows
that it clearly regards a deal with Crédit Lyonnais as
strategically important. After all, the reason Pébéreau became
embroiled in a three-way spat with Société Génerale and Paribas in
1999 was that he really wanted to buy a French retail bank. He
ended up with investment bank Paribas but he's still looking for a
retail equivalent to boost BNP's 5.6% domestic market share.
It's difficult to deny that there is a good deal of synergy.
Crédit Lyonnais' branch network in France is almost the perfect
match with BNP Paribas and there are also savings to be made by
merging the French divisions of each institution's corporate and
investment bank. One analyst estimates that BNP could produce e20
of savings per Crédit Lyonnais share.
If that e58 was paid in cash then those savings would go directly
to Crédit Lyonnais' shareholders but actually any acquirer of
Crédit Lyonnais would have to use shares. The possible exception is
Crédit Agricole, which has reserves of up to e10 billion, according
to some analysts, and so it could afford to pay up to two-thirds in
cash.
For BNP Paribas the clock is ticking. "Now that BNP has paid e58
per share it has effectively bought an option on the rest of Crédit
Lyonnais," says one analyst. If another suitor bids e50 per share
and BNP doesn't counter-bid it will lose out to the tune of e250
million to e300 million.
The analyst feels that Crédit Lyonnais would be better off in the
hands of Pébéreau and his team, who are highly regarded and have
merger experience already, than Crédit Agricole CEO Jean
Laurent.
Everything now depends on the stock market. BNP's share price fell
slightly, from e45.60 to e40.60, on the news of the offer but
rebounded to e41.30 as Euromoney went to press.
If it goes up to e50, analysts at Citigroup reckon it could make a
bid that would be value creative for shareholders.
One thing is for sure. The sooner this mess is sorted out the
better it will be for Crédit Lyonnais. No-one wants to see a battle
turn into a full-scale war, least of all the French
government.
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