Excessive Takeover Premiums Paid by Acquiring Banks Controlled by Mutual Banks: The Case of Crédit Agricole–Crédit Lyonnais

Abstract

In France, mutual banks played a key role during the recent period of consolidation of the banking industry because they acquired many privately listed banks. Our analysis of the acquisition of the private bank Credit Lyonnais by the mutual bank Credit Agricole illustrates three findings. First, the mutual bank had to create a new private bank (CASA), which went public to raise the capital needed to finance this megadeal. However, there are conflicts of interest between controlling shareholders (mutual bank) and minority shareholders of CASA. Second, the weak governance of CASA enabled managers to pay a very high premium in the takeover bid. Third, this excessive premium prompted financial markets to react negatively to the announcement of the megadeal, such that CASA’s market value fell to about €2.5 billion. In summary, conflicts of interest in the banking industry between minority shareholders and controlling shareholders of the bidder appear particularly serious when the blockholder is a mutual bank.