15/2/2018 Battle royal verges on full-scale war: Discovery Service para UNAM

Título: Battle royal verges on full-scale war. Por: Morris, Jennifer, Marshall, Julian, Euromoney, 00142433, Dec2002, Vol. 33,
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Base de datos: Business Source Complete

Battle royal verges on full-scale war

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News Market Monitor
France

BNP Paribas' €2.2 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.

CA bids too low

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.

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 (€3.2 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 €1 billion to €1.5 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.

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At €58 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 €2.6 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 P´béreau 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 €20 of savings per Crédit Lyonnais share.

If that €58 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 €10 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 €58 per share it has effectively bought an option on the rest of Crédit
Lyonnais," says one analyst. If another suitor bids €50 per share and BNP doesn't counter-bid it will lose out to the tune of €250 million
to €300 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 €45.60 to €40.60, on the news of the offer but
rebounded to €41.30 as Euromoney went to press.

If it goes up to €50, 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.

Stakes in Credit Lyonnais

Legend for Chart:

A - Shareholder
B - Percentage

A B

BNP Paribas 11+

Crédit Agricole 10.0
AGF/Allianz 10.0
Axa 5.3
Commerzbank 3.9
SocGen 3.9
Intesa BCI 3.7
BBVA 3.6

Source: various market sources

PHOTO (COLOR): Pébéreau: BNP Paribas' purchase of the state's remaining stake in Crédit Lyonnais shows he is in fighting mode

~~~~~~~~

By Jennifer Morris

edited by Julian Marshall

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