No winners in French takeover battle

It was just after 4:00 on Saturday morning when the Governor of the French Central Bank, Mr Jean-Claude Trichet, emerged from his 11-hour meeting with French banking regulators, to read the terse, three-paragraph verdict to the warring chairmen of the Banque Nationale de Paris and the Societ"e Generale.

BNP had won 31.8 per cent of SG's voting rights and 37.15 per cent of its capital in an acrimonious six-month takeover battle. BNP's chairman, Mr Michel Pebereau, claimed this constituted "effective control", but in the end, the French Committee of Credit Establishments and Investment Enterprises, chaired by Mr Trichet, disagreed.

Neither did BNP "hold effective power of control" over SG, the Central Bank Governor read, nor had it been possible "to reach a clear, concerted industrial solution." In these circumstances, the CECEI could not allow BNP to maintain its minority stake in SG. The shares it purchased since launching its raid last March must now be returned to their vendors.

In the ornate ante-chamber of the Banque de France, Mr Pebereau blanched, then his face filled with fury. SG's chairman, Mr Daniel Bouton, was visibly relieved.

As with most wars, everyone had lost. Ten years after his brother Georges failed to take over SG, Mr Pebereau was defeated on the same battlefield. Mr Bouton had managed to salvage the independence of his bank but, with a bourse capitalisation of €17 billion, SG is now considered isolated and vulnerable to foreign takeover.

The biggest loser of all was Paribas, the venerable old investment house whose well-loved chairman, Mr Andre LevyLang, resigned on August 18th after BNP took over his bank. The French Finance Minister, Mr Dominique Strauss-Kahn, had favoured Mr Pebereau's plan for a mega-merger of BNP, SG and Paribas, all the while proclaiming the independence of the French banking authorities.

Speaking at a Socialist Party meeting in La Rochelle, Mr Strauss-Kahn said he was "sorry that the banks did not succeed in reaching an agreement". French commentators said the banking saga showed "the profound transformation of French capitalism", since the government for once bowed to the market's decision. But if French business is falling in line with a globalised world, the episode also showed how fiercely this is resisted. The reaction of the Interior Minister, Mr Jean-Pierre Chevenement, was typical of old-fashioned, interventionist French nationalists.

The CECEI verdict was "a real attack on national interest", Mr Chevenement told Le Monde. "That an irresponsible bankers' committee independent of all democratic authority took this decision tells a lot about the decline of the state," he added.

Mr Trichet was criticised by European bankers for allowing the takeover battle to take on such proportions, to go on so long, and for attempting to intervene against the wishes of the bank chairmen. Yet the central bank governor was less scathed by the conflict than others. The outcome was consistent with the CECEI's earlier ruling that BNP had to gain more than 50.01 per cent of SG's voting rights - unless there was "a clear and concerted industrial solution".

By respecting the will of the market - and resisting pressure from the government and influential shareholders - Mr Trichet salvaged his own credibility as the defender of the central bank's independence and an economic liberal. He may even have preserved his chances of succeeding Mr Wim Duisenberg as the President of the European Central Bank.

Other factors helped persuade the CECEI to rule against BNP. On Friday afternoon, the MInistry of the Interior deployed 11 busloads of CRS riot police around the Banque de France to watch over a demonstration by just a few hundred of SG 's 58,000 employees, most of whom wore suits and ties. But slogans like "lynch Pebereau" and the threat of months of industrial unrest were a deterrent.

Likewise, Mr Bouton had intended to appeal the CECEI's decision if it favoured BNP. Legal action could have paralysed the French banking sector for at least another six months.

Before the end of the year, SG is expected to create a partnership with at least one of three friendly European investors through crossed shareholdings. The leading Spanish bank BSCH, the British insurance company CGU, and the Dutch banking giant ABN Amro are likely candidates.

Mr Pebereau told yesterday's Journal du Dimanche that he will not contest the CECEI's decision, but will instead concentrate on BNP's takeover of Paribas, which creates the biggest French bank and the third largest bank in Europe in terms of assets.

The French political and business communities liked Mr Pebereau's idea of a French megabank which would have been one of the world's largest. But banking analysts say Mr Pebereau made two mistakes. He was arrogant and cheap - arrogant in pretending that his hostile takeover bid was a friendly merger; cheap in bidding only €18 billion for SG. Had he offered at least €22 billion, he probably would have succeeded.