M&A: Europe plays the takeover game
Is French banking embracing Anglo-Saxon business style and finally bowing to shareholder value? The escalation of events since February would certainly suggest so. The bitter takeover battle currently being fought by Société Générale (SG), Paribas and their hostile suitor Banque Nationale de Paris (BNP) looks set to be decided for the first time by investors rather than the government.
The situation may get more complicated if other suitors step in. Governor of the Bank of France Jean-Claude Trichet might want to intervene in the national interest if a foreign bank decided to enter the fray. But at a time when he wants to prove that he would make a forward-looking European Central Bank governor, he would have to come up with a convincing reason to reject a German, Dutch or Italian bid after accepting the unsolicited one from BNP.
A breakthrough in the consolidation of the fragmented French banking sector had been brewing throughout last year. In the words of one prominent French banker: “Everybody had talked to everybody.” It was no surprise that the launch of the euro acted as a catalyst for the emergence of deals, but it was not clear who the parties would be. “It was important for both SG and Paribas to find a merger partner,” says Philippe Blavier, head of investment banking at Paribas. “They couldn’t stay alone much longer. They needed critical mass.” In the frenzy for banks to tie the knot, SG and Paribas managed to put a deal together quickly and discreetly and got to the altar first. Or at least this is what they had thought before the intervention of BNP.
Both parties had been in talks with other banks at various times in 1998, and both had previously considered a deal with BNP. SG and Paribas had themselves held merger talks two years ago which were then revived just after the new year, helped by the momentum of the euro. “We knew all the players,” says Blavier at Paribas. “After a careful review of the strengths and weaknesses of the partners available, we chose SG.” Rumours in the market had suggested that Paribas would team up with a foreign investment bank, but in the end the executives felt it was important to consolidate domestically before trying to forge international partnerships.
During the last two weeks in January a tight-knit team of six people worked on the deal in secret. The group consisted of the chairmen of the two banks – Daniel Bouton of SG and André Lévy-Lang of Paribas – plus Philippe Citerne and Patrick Duverger of SG and Jean Clamon and Bernard Müller of Paribas. By the time Pierre Servan-Schreiber, a partner at law firm Sullivan & Cromwell, was hired by SG on January 23, 14 people were informed of the plan. “There was no intention of having anyone else involved before the launch,” he says. Rothschild, Morgan Stanley Dean Witter and Merrill Lynch were only brought in as advisers after the launch of the deal.
Servan-Schreiber describes the deal as a “French-style” merger: quick, simple, and secretive, but leaving some details unresolved until later. “The focus was on structuring and launching the SG Paribas project rather than speculating on possible hostile bids. We decided to cross that bridge when we came to it. It was perceived that speed was the key, as it would be hard to preserve the confidentiality of a such a huge deal for very long,” he says. “They did not want to give anyone time to throw a spanner in the works.” It was well known that Michel Pébereau, the chairman of BNP, would feel marginalized by the teaming up of SG and Paribas, and Bouton and Lévy-Lang were wary of what his reaction might be.
Two times fourth biggest
On February 1 1999 Bouton and Lévy-Lang announced their plans for SG Paribas, as the new entity would be called. With total assets of €670 billion ($710 billion), and shareholder equity of €21 billion, SG Paribas would be the fourth-biggest bank in the world after Bank of America, Citigroup and HSBC in terms of shareholder equity. It would be the fourth-largest bank in the eurozone by market capitalization after ING, Fortis and BSCH.
The deal is planned as a public share exchange offer in which SG will buy eight Paribas shares for five of its own. This structure gives Paribas shareholders a premium of 17% and SG shareholders an upside of around 4%, therefore transferring much of the value of the deal to the selling shareholders. Restructuring and integration costs could total up to €1 billion, but in its initial estimates the new bank expected to make cost savings of €800 million a year for the next three years. These savings were to be found in eliminating overlaps in information technology, offices and personnel, cutting the bank’s loan portfolio and by reducing the amount of capital allocated to investment banking by €1.2 billion.
The SG Paribas deal was characterized by Bouton and Lévy-Lang at the launch as the coming together of the two most international and shareholder-friendly privately-owned French banks, to create the largest bank in France and a formidable competitor in Europe. They highlighted the complementary nature of their businesses and lack of duplication. “This is a more expansive and cooperative deal built on the production and distribution model,” said Bouton at the launch of the deal in London. Success would be based on distributing Paribas’ high-quality financial services products to more customers through SG’s extensive retail network.
Non-retail banking is to be restructured and divided into investment banking and corporate and wholesale banking. Bouton likened the deal to the structure of Chase Manhattan, and said that they were well prepared for the challenges of combining a commercial and an investment bank. It was estimated that, from a current level of just under 12% return on equity for both banks, SG Paribas could achieve 15% ROE by 2000.
The plan is initially to have Lévy-Lang of Paribas as chairman, followed by Bouton of SG when Lévy-Lang retires in 2002. The two men have been competing fiercely with each other for years but they are on good terms. In fact their competition seems to have built mutual respect. “You must have esteem for your future bride,” said Bouton at the launch.
But despite the new-found harmony between the two banks and the backing of the major shareholders and the French government, the SG Paribas concept was not well received by the market. SG’s share price fell by 10% in the four days following the announcement, and Paribas’ shares lost over 7%. Many had hoped for a coupling that would have more overlaps and more potential for cost-cutting, for example the merger of SG with another retail bank. Some analysts thought that the plan was too aggressive in estimating extra revenues. It was also perceived that the focus of the new bank was on the risky sphere of investment banking rather than the safe revenues of retail. “We didn’t explain the deal correctly, and the market got the impression that the deal was focused on investment banking,” says chief financial officer Jean Clamon at Paribas.
Another reason for the cool response was the speed with which the deal was prepared and the lack of concrete figures presented to the press, analysts and investors. The banks acknowledge their weakness in communicating the strengths of the project to the public at the beginning. “Because the deal was prepared in such haste, the initial communication was maybe not clear enough on the objectives and what the results would be,” says one SG adviser. Stephen Brisby, head of corporate finance at SG, comments on the lack of outside advisers until after the launch. “With the benefit of hindsight, a better job could have been made of presenting our case, particularly to Anglo-Saxon audiences,” he admits.
Fears for jobs in investment banking added to the negative press for the SG Paribas launch, particularly in the combination of activities overseas. Both banks’ profits for 1998 have been hit badly by losses in emerging markets. SG and Paribas combined have 4,100 staff in London and 4,000 staff in New York, and Bouton and Lévy-Lang estimated that 800 jobs would be lost in London. Many in the market expect this to be nearer to 1,200, and speculation centres on the axing of SG’s fixed-income team and Paribas’ equities team. It is rumoured, though, that new jobs could be created in bonds and derivatives.
Bad feeling was reputedly already running high within Paribas, as many employees believed the bank should remain independent. They feared getting swallowed up by SG people in a merger that they expected the bigger bank to dominate, and it is rumoured that some on the Paribas trading floor cheered when BNP intervened in the deal. One of the fixed-income sales team in London has apparently been running a “sentiment index” measuring the team’s feelings towards Paribas’ situation, further proof that there have been mixed feelings towards merging with SG.
Although there were some misgivings in the market, most people considered SG Paribas a done deal. Investors were glad that the restructuring of French banking had begun in earnest and looked to the privatization of Crédit Lyonnais to provide some further change.
But the announcement of the SG Paribas plan had triggered fervent activity behind the scenes. Pébereau at BNP, the third major privately owned bank in France, felt snubbed by the deal. He had been in merger talks with SG for over a year, and claims that the day before the SG Paribas announcement, BNP and SG had been on the verge of signing a deal. “It was a shock to BNP,” says one of their advisers. It echoed BNP’s failure to buy CIC in 1998.
Further injury came when BNP’s bid to be one of the strategic shareholders in the privatization of Crédit Lyonnais was rejected by the French government, while SG’s and Paribas’ bids were accepted. Stung by having to revise BNP’s two major strategies, Pébereau reacted by hiring lawyers and advisers, including Goldman Sachs and Lazard Frères, and hatching a merger plan of his own.
Pébereau decided to create an even bigger French bank, but with BNP at the helm. On March 9, just days before the completion of the SG Paribas merger was due, BNP announced its plans for an unsolicited takeover of both banks, worth $37 billion. There were very few precedents for hostile takeover bids in the highly regulated French business environment, and a three-way bank merger, hostile or otherwise, had never been attempted anywhere. Such departures from convention were the last thing the markets expected from the previously sluggish world of French banking.
BNP has made separate bids for both banks in the form of exchange offers; 15 BNP shares for seven SG shares and 11 BNP shares for eight Paribas. BNP could end up just buying Paribas, but it can’t buy SG on its own. French corporate law says that if BNP buys SG it must honour the bank’s prior commitment to buy Paribas.
The plan, named SBP after each bank’s first initial, would create a bank with a market capitalization of €50 billion, and the largest in Europe by assets. It would also have 18% of French bank deposits, 130,000 employees and 4,700 branches. “The fundamental idea is retail consolidation,” says Laurent Tréca, head of strategy at BNP. “What we want to do is nothing different to what other European countries have already done.” The BNP and SG retail networks would be kept separate but with some back-office integration, and Paribas would remain autonomous to concentrate on investment banking and specialized financial services. Pébereau has denied that he plans to sell Paribas after retaining it for the compulsory period of two years. Overseas operations would be merged (one of the prime sources of cost cuts), as would BNP and SG’s commercial and investment banking. BNP predicts fairly aggressive figures for cost-cutting – it will aim to eliminate between 7% and 8% of the combined group’s costs, and has set a target for 16% ROE by 2002.
Shocking revelations
Just as SG and Paribas had feared, a spanner had been thrown into the works. And despite their planning, they could do nothing about it. The day before the BNP bid, Servan-Schreiber at Sullivan & Cromwell had been asked by SG to call the Conseil des Marchés Financiers (CMF), the financial markets regulator, and find out the last possible time for another bidder to intervene in the SG Paribas deal. He was told by CMF deputy general secretary Marie-Josèphe Vanel that 5pm on March 11 was the deadline. But during the conversation he sensed that Vanel already had people in her office. He later found out that they were BNP executives informing the regulators of their bids for SG and Paribas.
The day after BNP had spoken to the CMF, Pébereau telephoned Lévy-Lang and Bouton to tell them about his offer. “We had no information about a bid before this phone call,” says Jean Clamon, chief financial officer at Paribas. “It was a total shock.” Rejecting BNP’s claim that in January it had been close to clinching a merger deal with SG, those close to Bouton claim that meaningful talks with BNP had actually ground to a halt early in 1998 but Pébereau persisted in making advances for the rest of the year. “If a merger with BNP made sense, SG would have come to an agreement. But they came to a conclusion that it was a dangerous game to play in France, with only costs mounting for five years and no savings,” says a source in the Paribas camp. He points out that because extensive branch networks may not be necessary in the retail banking of the future, it makes more sense for SG to team up with a bank with a strong direct-banking business like Paribas.
It was a bold move by BNP to neither talk to the Bank of France or the target banks before officially launching the bids, and can be taken as further proof that the traditional French way of doing things may be on the way out. SG and Paribas characterize BNP’s twin bids as hostile because BNP approached the authorities before it talked to its targets. BNP prefers to call the bids unsolicited, and say they could be friendly if SG and Paribas were prepared to enter talks. As well as eulogizing about the extra value that combining two retail banks would add to the original SG Paribas concept, sources inside BNP justify the bid as a necessary defensive move. It is claimed that SG and Paribas planned to bid for BNP themselves after their own merger.
Pébereau’s slick presentations to the media and analysts contrasted with some of SG and Paribas’ earlier public appearances, and despite the huge ambition of the BNP plan, it was embraced by the markets. “The market reacted so badly to the SG-Paribas announcement that SG shares fell by over 10%,” says Tréca at BNP. “When BNP announced its deal, the market thought this was a desperate move. But our presentation the next day changed all that and people understood the logic behind SBP.” Shares for all three parties soared in the days after BNP’s announcement. “The BNP proposal for a three-way merger has a greater likelihood of success than the previously proposed two-way merger,” states analysts’ research from JP Morgan.
Because of the unconventional nature of the bid, some resistance from the regulators was expected, but to SG and Paribas’ dismay it cruised through without opposition and even seemed to have the tacit support of the Banque de France. Trichet has implored SG and Paribas to negotiate with BNP and come up with a friendly solution, possibly because he fears foreign banks will intervene if a stock market battle goes ahead. “There has been indirect pressure by the political establishment to accept the BNP bid,” says a Paribas adviser. “These dreams of grandeur are exactly what the traditional French establishment adores.” He compares the enthusiasm for the SBP project with the official backing of Crédit Lyonnais’ ill-fated plans during the 1980s.
Claude Bébéar, the chairman of the Axa insurance group, has been an influential figure in the saga. He switched his allegiance from the SG Paribas deal to the SBP project just before the BNP bid, and his backing was essential before the bid went ahead. “As the first shareholder at BNP and the first shareholder at Paribas, Bébéar is fundamental,” says Tréca at BNP. “Of course we would never have launched this without his support.”
Although he has an obvious interest in the situation as a major shareholder of Paribas and BNP, with a small share in SG and seats on the boards of all three banks, many have suspected other motives for his involvement. A keen big-game hunter, Bébéar has a reputation as a godfather on the French political and business scene. He is said to enjoy pulling the strings and in the past has been very protective of Paribas. It is thought that he had always tried to push BNP and Paribas together and may have resented Paribas acting independently and making a deal with SG.
Others attribute Bébéar’s actions less to his ego and more to the safeguarding of the channels of distribution for his insurance products. The bigger the branch network controlled by BNP the more outlets there will be for Axa insurance, which BNP currently sells through its banks. If BNP remained alone, it might become an acquisition target for Dresdner Bank, with which it has often been linked. This could let Allianz, Dresdner’s preferred insurer and Axa’s German rival, into the French market by the back door. Only time will tell how much influence Bébéar will be able to exercise over the eventual outcome.
What about the workers?
Although it was well received by the markets, not everyone has seen the SBP project in a good light. There is no doubting the theoretical logic of the creation of a French champion in banking, but there are many ways in which practical barriers could scupper SBP’s success. First, the main banking unions are dominated by SG members and have expressed concern at the risk of retail-banking job losses in the BNP plan. Pébereau says that all staff cost savings in France will come from the glut of retirements due after 2004, but if there is any hint of extra job cuts industrial action is expected.
At a grass-roots level there is much rivalry between SG workers and BNP workers – as a Paribas adviser says: “Most SG staff would rather sell their souls to the devil than work for BNP.” This animosity stems from a failed hostile takeover of SG, the French banking sector’s first – 10 years ago, by Georges Pébereau, Michel Pébereau’s elder brother. With this still fresh in their minds, SG workers will fight fiercely against the BNP bid.
The issue of retail banking jobs has also raised concerns, for different reasons, with some analysts. They think that staff cuts are one of the few ways in which BNP can deliver its predicted savings but French legislation makes it hard to make people redundant. SG and BNP branch networks overlap in 90% of locations and cater for a similar customer profile, unlike the recent merger between Banco Santander and Banco Central Hispano in Spain, which are strong in different regions.
Because of the significant presence of the mutual banks in France, traditional retail banking is a low-margin business. Without combining fully the BNP and SG networks and eliminating the overlaps, the profits of the SBP group will be below target. Analysts have also raised the issue of the difficulties and costs of combining the two retail banks’ IT systems, a necessity if SBP is to gain any savings from putting the two retail networks together.
Conflicting strategies
The SBP project focuses on retail banking, as this is BNP’s traditional strength, with the plan for commercial and investment banking something of an afterthought. “The SBP industrial plan is questionable,” says John Leonard, European banking analyst at Salomon Smith Barney. “It is very difficult to run two competing investment banks from a strategic point of view,” he says. There are potential conflicts of interests and corporate clients might be put off.
Leonard also highlights the obvious personnel difficulties of bringing unwilling SG and Paribas bankers under BNP control. Rival banks could be the main beneficiaries as bankers who are reluctant to work within the BNP framework flood onto the market. “If there is any doubt about BNP’s promises not to sell Paribas, it will discourage good people from working there. They will find it hard to run at the end of the day,” says Leonard. One observer reckons that hostility at SG and Paribas towards BNP is even worse at the executive level than at the grass roots, and is mixed with a measure of snobbery. “The people at SG have outperformed BNP in every sector year after year. Would they now be taken over by a bank that they consider inferior?”
As soon as BNP’s bid was announced, the heads of SG and Paribas rejected the bid and refused outright to enter talks with Pébereau. At a press conference in London on March 25, Lévy-Lang stated: “We just do not see how a three-way bank merger will work. It is a major challenge and takes a lot of work and hundreds of people. It is already very challenging to combine two banks in a friendly way.” Blavier criticizes the industrial logic of SBP’s investment-banking plans. “The concept of multi-brand investment banking doesn’t exist. The businesses would be in direct competition for bond mandates,” he says. “I don’t understand why BNP wants to keep the investment banks separate. Probably because they want to have the option of selling Paribas.”
Work on the SG Paribas project gathered pace despite the BNP bid. The teams in charge of the counter-offensive were by this time based in a Paribas building on Avenue Kléber, roughly halfway between the SG skyscraper in La Défense and Paribas’ more traditional headquarters in the Opéra district. The Avenue Kléber “war room” is the site of all joint meetings and houses the growing numbers of advisers, lawyers, and PR people involved in fighting the takeover. At peak times it is filled with over 100 people from SG, Paribas and their helpers.
The integration of SG and Paribas had reached a fairly advanced stage when BNP announced its intentions, and decisions on which businesses to keep and who would head them had already been made by 15 different working groups. These plans will not be revealed until after the battle has been resolved. Blavier at Paribas estimates that once the coast is clear, work on the SG Paribas deal can be revived and completed within a week.
A key part of the banks’ defence was the launch on March 24 of revised figures for savings and costs for the SG Paribas project. Having worked for over six weeks on the details of the merger with advisers, they came up with a new package that promised an extra €150 million of post-tax savings a year and set a target for an overall ROE of 18% by 2001. This reworked strategy was designed to appeal to investors, with less capital devoted to investment banking and more to retail. Capital for investment banking will drop from 46% to 32% with most of the reductions coming from commercial loans, although some important lending relationships with corporates will remain for which all services will be provided. SG and Paribas estimate that by 2001 €13 billion excess capital will be generated, e6 billion of which will go to shareholders through share buy-backs.
The relaunch of SG Paribas was generally welcomed by analysts and investors, though the media decided that, in response to BNP, the banks were merely plucking numbers out of the air. Clamon at Paribas insists the numbers have credibility, and are just the product of more time and energy being spent on the SG Paribas plans. “It is normal that the synergies are higher than anticipated,” he says. “At first we were being cautious.” Nobody denies that BNP’s actions made a reworking of the original SG Paribas plan necessary, but the banks say the figures would in any case have been improved. “Following seven weeks of detailed joint work, and in the context of the hostile bid, we were able to improve the SG Paribas project, but the effect was acceleration rather than a change in strategy,” says Brisby at SG. “We just put more meat on the bone.”
Although the new plan succeeded in raising the stakes, it was insufficient to shake off BNP’s challenge. BNP welcomed the new figures and said that they proved how much more fruitful it would be to add BNP to these savings. “Whatever the strength of the SG-Paribas merger, our SBP project would have the same plus additional strengths derived from retail banking,” says Tréca at BNP.
A bond forged in battle
Since the BNP bid, Bouton and Lévy-Lang and their teams have maintained a united front, to the surprise of some. “I wouldn’t have expected everyone to be so faithful to the SG Paribas project after the BNP offer, but cooperation has continued without a glitch,” says Servan-Schreiber at Sullivan & Cromwell. “Through all the tensions of the last month a bond has emerged between them,” says Brisby at SG. Fighting the BNP bid may have actually cemented their relationship. “We have only one goal – to set up SG Paribas,” says Clamon at Paribas.
The next step in their defence was the rejection of BNP’s offers by the SG and Paribas boards. On April 6 board meetings were held; all SG members voted to reject BNP’s offer with the exception of Bébéar, and at Paribas the dissenting voices again came from Bébéar as well as the industrialist Jean Gandois, who is also a BNP board member. The board members representing Paribas workers abstained, reviving rumours that Paribas staff want to remain independent. Advisers to BNP have criticized SG and Paribas management for not presenting BNP’s bid to their boards before it was rejected and raise questions of what the proper corporate governance should be. “The boards haven’t called special meetings with BNP, they have just dismissed the offers out of hand,” says one adviser. “This would be unheard of in Anglo-Saxon corporate culture, they would have to talk to whoever makes a decent offer.”
Board manipulation denied
SG and Paribas dismiss the criticism that the boards were manipulated. “The board members are prominent members of the international business establishment,” says a source in the Paribas camp, citing Thierry Desmarest of oil company Total and Patrick Ricard of drinks company Pernod-Ricard as examples. “They are independent-minded, decisive businessmen, they are not sentimental people.” The board members have a wider range of interests and loyalties. SG’s board includes Jacques Calvert, a former chairman of BNP. “Calvert is obviously not just a BNP-basher,” says a Paribas source. In fact, some claim that the most pressure on board members has come from BNP. Pébereau apparently sent each member a six-page personal letter trying to convince them of the merits of SBP.
Just after the boards’ decisions, a Paris court agreed to hear an appeal from SG and Paribas challenging the CMF’s decision to allow the BNP bid to go ahead. Because there are two separate bids running in parallel, SG shareholders and Paribas shareholders will have to decide whether to sell their shares to BNP before they know whether BNP has been successful in acquiring the other bank. “Machiavelli prepared the BNP deal, I’m certain of it,” says Servan-Schreiber at Sullivan & Cromwell. “It has been carefully planned to create confusion. You cannot ask a shareholder to tender their shares when they have no idea what the bank will look like at the end of the day. It is impossible for any shareholder to understand what is being offered.”
SG and Paribas claim that under the current offer structure there are 22 possible outcomes. “It is absolutely unclear for shareholders what is the real value of each share,” says Clamon at Paribas. They hope that the court will order BNP to clarify their offer, cancelling the current bids and allowing the SG Paribas merger to proceed as before. BNP could then decide whether to retreat or try and bid for the new bank in its entirety. The appeal is to be heard on June 1. “What was going to be a very quick merger is dragging on and on,” says one member of Paribas’ fixed-income team in London.
While waiting for the outcome of the legal appeal, BNP and SG Paribas have embarked on a PR war, launching lavish press and radio advertising campaigns. Both sides will try to convince investors of the strengths of their respective plans, and hope that their share price will rise most before the deadline for the share exchange. BNP commissioned a poll that indicated popular support for the SBP project. Of almost a thousand adults interviewed by phone, 53% thought it a good idea.
SG and Paribas, though, claim that market sentiment is moving in their direction. “There is no question that BNP won the first round,” says Brisby at SG. “But this will be a long-drawn-out affair and time will work in our favour. Time will expose the superficiality of BNP’s attractions and show the solidity of our projections.” Clamon points out that there are lots of deals where the market changes its mind. “The markets are always right, but not necessarily right immediately. They have to digest the situation first.”
The shares of all three banks peaked in early April, dropped, and then towards the end of the month were fairly static. The bidding war that was widely expected has failed to materialize, but trading will no doubt heat up when the timetable for the offers is revealed and the deadline draws nearer. SG’s offer for Paribas had the highest value for most of the time, but in mid-April BNP’s share price rose.
Betting everything on the share price is risky for all three banks, especially as it makes the mergers vulnerable to outside market shocks. And the stock-market fight is becoming increasingly bitter. On April 12 BNP complained to the CMF alleging attempts by SG and Paribas to manipulate the BNP share price. The banks insist that the irregular trades were merely the completion of options transactions they had committed to earlier in the year, and not proprietary trading.
Both sides have suffered damaging leaks. French newspaper Libération published an anonymous letter from senior executives at SG accusing Bouton of rejecting the BNP bid for reasons of power and ego rather than shareholder value. At BNP a senior banker told the press that Pébereau was going to “go through the workforce with a flame-thrower”, culling tens of thousands of jobs. The bouts of speculation and the length of the fight will no doubt damage the morale and the businesses of all three banks. “The situation has created lots of uncertainty, which is not good for the teams and clients,” says Blavier at Paribas.
The latest twist emerged on April 19 when Paribas’ lawyers unearthed a 10-year-old anti-takeover pact with Axa. It states that neither party can use its shares in each other to forward hostile bids – neither can sell its shares in each other without the other’s consent. This is valid until 2001, and was invoked by Paribas in its official response to BNP’s bid prospectus. Axa has hit back, saying the document is too vague to be legally binding, and that there are many ways they can get around it.
The timetable for the deal, delayed several times and due to be announced as Euromoney goes to press, should outline the exact procedure for the share exchange. The battle will then begin in earnest. Any third party will have up until five days before the exchange to bid and complicate the situation further. SG or BNP could also consider increasing their bids. “All bets are off on the outcome,” says Leonard at Salomon Smith Barney.
Many foreign banks, from Merrill Lynch to Commerzbank to ABN Amro, have been rumoured to be planning an attack. This could be the last chance any non-French player has to gain significant access French banking for some time. SG and Paribas have even hinted that they will forge an alliance with one or several major European banks to fend off BNP. But the consensus is that there will be a French solution, and many suggest that no foreigner wants to get caught up in this highly political and domestic dispute.
A bank is a sensitive animal
Whatever the outcome, the BNP bid has irrevocably altered the norms of the French banking environment. “It puts an end to the accepted idea that hostile takeovers cannot be launched,” says Blavier at Paribas. But he is not convinced that a wave of hostile banking bids will follow. “Our assets are people. A bank is a very sensitive animal, it is a business based on personal relationships. You must have the consent of the top people to carry a merger out. If you don’t have this agreement it is a difficult proposition.”
Both sides are insistent that they will win. “SG and Paribas’ current strategies only aim to gain time and prevent the inevitable. They are doing that at the expense of shareholder value,” says Tréca at BNP. “The SG Paribas merger is continuing,” says Lévy-Lang at Paribas. Whichever side wins, the fight has gone too far and become too vitriolic for the three chairmen to make friends again. They have all risked their careers, and for Lévy-Lang and Pébereau (who are near retirement age) defeat may mean an exit from banking.
With this in mind, many spectators cannot quite believe the major players in the drama will set their egos aside, and that the government will resist the temptation to intervene, and simply let the shareholders decide. But so far the shareholder-friendly rhetoric has held up. As Lévy-Lang joked to a crowd of sceptics at a London press conference in late March: “I’d like you to make a wild assumption. France is a normal country where boards make decisions and the government minds its own business. It might just happen!”
