BNP Paribas bowed to the inevitable on Thursday and said that it was suspending its takeover of the Belgian financial services company Fortis after a court ruling that effectively froze the deal.
BNP Paribas, one of the largest French banks, had offered €14.5 billion, or $21 billion, for Fortis after the Belgian company neared collapse in the aftermath of the implosions of American International Group and Lehman Brothers.
But the Brussels Court of Appeals found on Dec. 12 that the Belgian government had not fully considered the interest of Fortis shareholders when it sought to sell the company in early October, a move that effectively wiped out the company's equity. The court said shareholders must be allowed to vote on the deal by mid-February.
That ruling, which the government has said it will try to overturn, effectively ended BNP's chances of closing the deal quickly. Lawyers in Brussels representing Dutch and Belgian shareholders of Fortis have said that the case could drag on for months or even years.
Under the circumstances, "the acquisition of a stake by BNP Paribas in Fortis Banque cannot proceed as initially planned," BNP said. As a result, a BNP shareholder meeting set for Friday to approve the deal has been canceled.Céline Castex, a BNP spokeswoman, said the bank nonetheless remained interested in pursuing a deal for Fortis.
Shares of Fortis have risen 25 percent since the court ruling last week amid hope that the deal would be renegotiated.
BNP might have been seeking to reduce uncertainty surrounding its business after its shares came under heavy selling pressure this week.
The bank revealed Tuesday that its corporate and investment banking unit lost €710 million in the first 11 months of 2008, partly from €350 million of exposure to the fraud allegedly perpetrated by Bernard Madoff in New York. BNP shares, which fell 17 percent Wednesday, fell 3.6 percent in Paris on Thursday.
Previously a Dutch-Belgian company, Fortis neared collapse at the end of September. A deal between the Dutch, Belgian and Luxembourg governments to salvage the bank collapsed, and the Dutch decided on Oct. 3 to nationalize the Netherlands operations at a price of €16.8 billion. On Oct. 5, BNP Paribas agreed to acquire Fortis's banking and insurance operations in Belgium and Luxembourg for €14.5 billion.
"I think the deal with BNP will probably go through in the end," Jaap Meijer, a banking analyst at Dresdner Kleinwort in London, said. The deal makes sense for BNP and Fortis debt holders, if not for Fortis shareholders, he added.
Fortis appears to be fairly well capitalized after proceeds from the sale of the Dutch arm were injected into Belgium arm, he said, and BNP had been depending on the acquisition to bolster its capital ratio.
Without a deal, he said, it might have to seek funding from the French government.
Fortis's Belgian business might be attractive to another bidder, like ING Group, the Dutch financial services company, Meijer said, though he noted that mustering funding for a bid could be difficult under current conditions.
Castex declined to comment on any plans BNP might have to raise funds.
In the Netherlands, a commercial court on Nov. 24 granted the request of the VEB shareholders group for an investigation of all activities of the company going back to mid-2007, when it began to pursue the ill-fated acquisition of ABN AMRO, a deal that left it saddled with an onerous debt at the height of the credit crisis.
Niels Lemmers, legal counsel for the VEB, said Thursday that Dutch shareholders would decide whether to pursue their own lawsuits after the investigators issue their findings next year.
Shareholders in the Netherlands believe Fortis's parts were sold off much too cheaply, he said, citing a Morgan Stanley estimate that the Dutch business was worth €22.5 billion, far more than the €17.8 billion the Dutch government had paid for it.
"In the end, the Dutch and Belgian governments saved the bank, they saved the financial system," Lemmers said. "We don't question that, but we do question the terms and the conditions."
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