Sources close to the situation said yesterday that BNP would discuss the possibility of improving its own all-share bid today - although the board would probably want to wait until after a crucial court decision tomorrow before making its own move.
SocGen's move to raise the offer and add a significant cash element poses a particularly awkward dilemma for BNP, which had been making most of the running in banking bid war since it gatecrashed the friendly SG Paribas merger in March.
Daniel Bouton, the SocGen chairman, told analysts yesterday that the enhanced offer represented an 8 per cent premium to BNP's bid.
BNP will now have to come back with a significantly better offer, even though, analysts said, it is constrained in terms of the cash it can offer by lack of capital. On the other hand, improving the terms of the paper offer would be dilutive to BNP's existing shareholder base.
One banker said yesterday: "The chances are they will sweeten their bid. But they have a terribly difficult decision to take. If they come back with a higher offer it has to be better than SocGen's. If they do nothing they run the risk of losing."
BNP shares fell sharply yesterday, reflecting shareholders fears' that it may have to pay up a significant premium in order to avoid both SocGen and Paribas slipping from its grasp. SocGen and Paribas shares were suspended yesterday.
Mr Bouton and Andre Levy-Lang, the Paribas chairman, also announced plans yesterday to incentivise the key 200 managers who will have to deliver the planned cost savings through a 200m euro share option. Mr Bouton said the revised SG offer, which includes a partial cash alternative and a 2.5bn euros share buyback, demonstrates the two banks' determination to deliver value to shareholders.
Outlook, page 19