Sometimes it takes the appearance of an ardent suitor to make a dithering couple realize how much they’re in love.

Sometimes it takes the appearance of an ardent suitor to make a dithering couple realize how much they’re in love.

By David Lanchner
January 2003
Institutional Investor Magazine

In a plot out of a Truffaut film, France’s Crédit Agricole Group and Crédit Lyonnais, which have been courting halfheartedly for years, decided to get hitched in a hurry after BNP Paribas declared its desire for Lyonnais.

Much of the credit for bringing about the E16.5 billion ($17 billion) merger goes to Crédit Agricole executive René Carron. Named chairman of the E513.8 billion-in-assets cooperative bank on December 2, he closed the deal within 14 days. The amiable, 60-year-old former dairy farmer says he wasn’t going to let “secondary details” get in the way. The largest acquisition in Europe last year (see Deals of the Year, page 42), it puts Agricole within hailing distance of BNP Paribas, France’s biggest bank. Crédit Agricole, as the combined banks are to be known, will have E716.8 billion in assets, not far behind BNP Paribas’s E759.4 billion.

The merger gives the largely rural Agricole a presence in French cities, where Lyonnais commands a 10 percent market share. And Agricole’s added heft from absorbing Lyonnais’s E203 billion in assets should make it a formidable international acquirer. As Lyonnais chairman Jean Peyrelevade puts it, the new bank is “a tool of conquest in Europe.”

So why did it take the two banks so long to commit? Agricole’s inefficient management structure let those “secondary details” get in the way. As chairman of Crédit Agricole S.A., Agricole’s publicly quoted vehicle, Marc Bué exercised considerable authority over the acquisition -- and was a reluctant wooer. He didn’t want to give in to Lyonnais executives’ demand that they be given control over such key activities as money management and investment banking. This strained Bué's relationship with Peyrelevade and dragged out talks.

Meanwhile, Carron -- who favored the purchase -- stood by helplessly in his role as chairman of the Fédération Nationale du Crédit Agricole. Although the federation represents 45 local cooperative banks that own 70 percent of Crédit Agricole S.A., Carron had no real part in the deal talks. “I could not enter into the details of the negotiations,” he confides.

The French government, feeling as exasperated as Carron, decided to either revive or end the on-again, off-again AgricoleLyonnais romance by auctioning off its 10.9 percent stake in Lyonnais on November 22. BNP Paribas’s aggressive, cigar-chomping chief executive, Michel Pébereau, bid E58 a share, handily besting Agricole’s perfunctory offer of E44.

“The price of inaction traveled like an electric shock through the organization, fundamentally changing attitudes,” recalls Patrick Gallet, chief executive of Crédit Agricole des Savoie, one of the 45 local banks that control the group.

The Agricole board finally acted. It accepted Bué's resignation on the same day that it turned over the chairmanship of Crédit Agricole S.A. to Carron. “We had lost the set but not the match,” Carron says.

An adviser to Peyrelevade adds that “the BNP Paribas bid not only changed Crédit Agricole’s attitude, it also changed the mentality of Crédit Lyonnais.” The Lyonnais chief, a left-leaning former Treasury official, was adamant about avoiding huge layoffs, and it was clear that Lyonnais had a lot less overlap with Agricole than with urban-focused BNP Paribas.

In the negotiations the Agricole chief concentrated on the big picture. “I told Peyrelevade,” says Carron, “that details of organization were secondary to the essential benefits of a merger.” He avoided being stingy and possibly sabotaging the deal: Agricole paid a hefty 22.5 times Lyonnais’s estimated 2002 earnings, or E56 per share, which was still two euros less than what BNP Paribas had offered for the government’s Lyonnais stake.

What of Agricole’s protracted courtship of Lyonnais? “The difference between taking one’s time and losing one’s time is slim,” suggests Carron. That is as true in love as in commerce.