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Lyonnais sparkles on bid talk

France's biggest bank plans to spend billions on acquisitions to boost earnings
France's biggest bank plans to spend billions on acquisitions to boost earnings

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PARIS, France (CNN) -- Credit Lyonnais stock soared on Monday after rival BNP Paribas bought a stake in France's sixth-largest bank.

The audacious move by BNP Paribas, the euro zone's biggest bank by market value, could trigger an all-out bidding war for Credit Lyonnais. BNP bought the French government's 10.9 percent stake in the bank for 2.2 billion euros ($2.2 billion).

Lyonnais (PCL) shot up by more than 20 percent, or 7.78 euros, to 46.72 euros and BNP (PBNP)slipped 2.59 euros, or 5.3 percent, to 43 euros in early Paris trading on Monday.

France's Finance Ministry surprised the banking establishment and shareholders on Friday by announcing that it would auction its stake. At midnight on Saturday, BNP Paribas was declared the winner after offering 58 euros per share -- 49 percent more than Friday's closing price.

"This is beginning to shape up as a battle," Sabrina Blanc, an analyst at CIC Securities, told Reuters. "BNP Paribas has placed the bar very high and shown what it is ready to pay in order to do something with Credit Lyonnais. This is not a purely financial operation for them.''

Credit Agricole, France's second-largest bank, has gone on the record as saying it would like closer ties with Lyonnais. Agricole owns 10.5 percent and is now the second-largest shareholder in Lyonnais.

Reuters said Agricole had been in talks with the government but was unwilling to pay the 40-50 euros per share demanded by Finance Minister Francis Mer for the state's stake.

Agricole's finance director said on Monday the bank was still interested in a merger with Lyonnais but was "extremely vigilant" on the price tag. Gilles de Margerie told analysts he had been "very struck" by the high price BNP paid and that could "accentuate" the premium paid for Lyonnais shares.

BNP Chairman Michel Pebereau in an interview with French dailies La Tribune and Les Echos said the high price paid was an "excellent opportunity" for his bank. He said making a full bid for Lyonnais was not an issue at the current time and would not lead to a change in leadership at Lyonnais, although he would like to establish "close dialogue" with the bank's management.

A phoney war could break out but the timing of a full blown war is clouded until a pact between shareholders expires in July of next year. Six banks own a third of the bank after the government sold shares in 1999, they include Agricole, French insurers AGF (PAGF) and Axa (PCGE), German bank Commerzbank (FCBK), Spain's BBVA and Italy's Banca Intesa.

Any of the shareholders who want to sell their stakes are obliged, until July, to offer them to other members of the group.

Three other French institutions made bids for the Lyonnais stake, including Societe Generale (PGLE), which offered 47 euros per share, Agricole, which bid 44 euros, and AGF, which offered 42 euros for a 3.5 percent portion of the holding, according to Reuters.

Credit Lyonnais, which has a market capitalisation of about 13 billion euros and is seen as too small to continue on its own in the long-term, held talks with Credit Agricole about a merger earlier this year before disagreements over the balance of power in a combined group scuppered a deal.

BNP, France's largest bank, said in May it would spend between 5 billion and 9 billion euros by 2005 on acquisitions, most likely in Europe.

Reuters contributed to this report.

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