PARIS (Reuters) – A deeply discounted $8 billion rights issue fromSociete Generale, seen in part as a bid by the scandal-hit French bankto remain independent, has not convinced analysts that it will deterpredators.
SocGen unveiled a one-for-four rights issue at 47.50 euros per shareon Monday to shore up its finances after it suffered 4.9 billion euros($7.1 billion) of losses due to a series of rogue trades the bankblamed on junior trader Jerome Kerviel.
"SocGen has lost the confidence of the market following the tradingloss, the deep discount rights issue and a low forecast for CIB(corporate and investment banking) in 2008," Dresdner Kleinwort said ina research note.
Dresdner added that SocGen had become vulnerable to a takeover bidby France’s biggest listed bank, BNP Paribas, and raised itsrecommendation on SocGen shares to "buy" from "add", while cutting BNPto "hold" from "add" amid speculation of such a deal.
Analysts said SocGen’s cash call, at a 39 percent discount to theshares’ market price, was a bid for survival as an independent company.
"Management’s presentation had characteristics more of a defenseagainst potential hostile acquirers than a traditional business plan,"investment bank Keefe, Bruyette & Woods said.
Lehman Brothers also interpreted the rights issue as a signal bySocGen that it could remain independent, but said it was skeptical.
"The SG (SocGen) standalone scenario is risky for shareholders at the current share price," the investment bank said.
SocGen shares were up 1.1 percent at 75.38 euros in early afternoontrade, giving the bank a stock market value around 35 billion euros.BNP’s market value is about 54 billion euros.
INDEPENDENCE?
Most market speculation has centered on a fresh approach by BNP for its cross-town rival, which BNP failed to buy in 1999.
On Monday, a source familiar with BNP’s thinking said it would notmake a hostile bid for SocGen but could be interested in a friendlydeal.
SocGen Executive Chairman and Chief Executive Daniel Boutonreiterated in newspaper interviews on Tuesday that the bank could stayindependent.
"I continue to think that our business plan, our dynamism and thusthe valuation of the bank constitute our best defense," he told Frenchnewspaper Le Monde.
And Citigroup said it was unlikely that SocGen would get a takeover offer soon, keeping its "sell" rating on SocGen shares.
"In the absence of a near-term cash offer for the group, we believeSG will continue to struggle as the stock comes to terms with a deeplydiscounted rights issue, an impaired franchise and challenging marketconditions," it said.
Citigroup cut its price target on SocGen to 62 euros from 65 euros.Lehman trimmed its price target by 1 euro to 94 euros and kept an"underweight" rating on SocGen shares.
Investment bank UBS, which raised its rating on Societe Generale to"buy" from "neutral", said a BNP Paribas bid was possible, but not inthe near term.
Dresdner added that BNP could offer 100 euros a share for SocGen.
"Even though SocGen has a few poison pills, SocGen may not be able to fight off an attractive bid," Dresdner said.
(Reporting by Sudip Kar-Gupta; Additional reporting by Reuters Bangalore; Editing by Will Waterman)
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