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CL at pre-issue premium
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June 28, 1999: 11:08 a.m. ET
Crédit Lyonnais shares trade 19% over expected range in privatization
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LONDON (CNNfn) - Shares of France's Crédit Lyonnais were trading at a nearly 20 percent premium to their upper price range in unofficial pre-issue trade Monday as investors trumpeted their high hopes for the most sweeping banking privatization in French history.
Under terms of a bailout approved by the Europe Commission, the French government is selling one-third of the bank -- or a non-blocking minority -- to a core group of seven shareholders that have committed to shepherding the bank's recovery over the long term.
An additional 42 percent stake will be sold to the public, while 5 percent will go to Lyonnais staff. Ten percent of the shares will remain in state hands; another 10 percent stake already is in the public domain, in the form of investment certificates that don't carry full voting rights.
Earlier this month, the French Finance Ministry set a price range for stock in the privatized company of 22.5 to 26.2 euros ($23.60 to $27.50). The government was set to announce a final price Monday evening in Paris.
But Monday afternoon, hours ahead of the finale fix, shares of Crédit Lyonnais were trading at around 31 euros in unofficial "gray market" trade as institutions speculated Lyonnais could become a ripe takeover target, Reuters reported.
Lyonnais's investment certificates, by contrast, fell 3.3 percent, to 36.74 euros in Paris.
The rally reflected investors' high hopes for a privatizing firm that was France's leading financial institution, with assets of 2 trillion francs, until mismanagement and ill fortune drove its humbled directors to seek a state-led bailout in the mid-1990s.
In return for the rescue, Lyonnais pledged to forfeit a portion of its profits to the French state every year until 2014.
Rival Crédit Agricole (PCAF), which has a10 percent stake as a core shareholder in Lyonnais, the maximum allowed under the privatization plan, is seen as a possible tie-up partner down the line.
But analysts attribute the run-up in the bank's pre-life stock price Monday as a sign that investors believe the bank may prove highly profitable in the near future.
"Investors think there is an important upside," said David Grinszthan, a Paris-based analysts with Merrill Lynch Global Securities. Grinszthan said he believed investors' fundamental valuation of the bank was higher than that suggested by the state's offering range.
The run-up in Crédit Lyonnais's share price comes against a backdrop of an acrimonious three-way bidding battle in the French bank sector involving Banque Nationale de Paris (PBNP), Paribas (PPM) and Société Générale (PGLE).
The French government has urged the banks to settle their dispute amicably, drawing accusations from critics who believe the government has overstepped its bounds.
The French state would like to see a French solution in the bid war, in which BNP launched a surprise $37 billion hostile bid for Paribas and SocGen after the targets had agreed to merge themselves. Since then, SocGen has sweetened its terms for Paribas, increasing the pressure on BNP to respond.
Aside from Crédit Agricole, the core shareholders in the Crédit Lyonnais privatization are Commerzbank (FCBK) of Germany; French insurer Axa (PCA); AGF (PAGF), the French subsidiary of Germany's Allianz; BBV of Spain and Italy's Banca Intesa.
-- from staff and wire reports
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Crédit Lyonnais
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