Credit Agricole, one of France's biggest banks, yesterday answered mounting speculation about its intentions towards Crédit Lyonnais by launching a €19.4bn (£12.4bn) bid for its rival.
Agricole, which has been circling Lyonnais for months, is offering five of its own shares plus €148.24 cash for every four Lyonnais shares, valuing Lyonnais at €55.64 a share.
If the deal goes through, the enlarged entity would rival BNP Paribas for top spot in the 12-country eurozone.
The bid, which was approved at board meetings of the two banks on Sunday night, throws down the gauntlet to BNP. France's largest bank sparked a tussle for control of Lyonnais when it snapped up the French government's 10.9 per cent stake in the bank in a hastily called auction three weeks ago.
Lyonnais's shareholders have until 23 January to consider Agricole's offer. In the meantime, BNP will be scrutinising the deal to establish whether it can justify making its own higher offer.
BNP said it was "keeping its options open and looking at what's being proposed", but BNP's shares jumped 7.5 per cent yesterday as investors predited it would walk away from a bid battle. Shares in Agricole, which already owns 17.4 per cent of Lyonnais, fell 1.9 per cent to €14.86, while Lyonnais rose 2.4 per cent to €54.
A link between Agricole and Lyonnais would involve the loss of 5,000 jobs, but Agricole stressed there would not be any compulsory redundancies.
The two banks expect to generate annual pre-tax cost savings of €760m from the merger. Yves Perrier, chief financial officer of Lyonnais, said annual synergies from corporate and investment banking were expected to total €490m, while retail savings would generate some €110m.
One analyst said: "Lyonnais is a good business, but those numbers look very demanding I will be interested to see if they can make them."
Under the deal terms René Carron and Jean Laurent, Agricole's chairman and chief executive, will have the top two jobs in the new group. Dominique Ferrero, Lyonnais's chief executive, is set to become operational second-in-command.
It could be the start of a wave of consolidation in the French banking sector. Observers expect BNP to be drawn into the fray even if it does not make a counter bid for Lyonnais. Société Générale, whose shares jumped more than 8 per cent yesterday, is seen as a target.
Join our new commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies