Societe Generale: Negotiating merger with Paribas

Societe Generale (SocGen) said that the BNP bid was not in the bank's best interests. It added that the bid undervalued its shares and that the proposed grouping of SocGen, Paribas and BNP would be "unmanageable."

SocGen said it will still be pursuing its plan for a friendly merger with Paribas.

Paribas also rejected the BNP bid, saying it would result in the dismantling of Paribas as a company and questioning the bid's legality.

Government may block bid

The two French banks may be hoping that the French Government may intervene to block the BNP bid.

On Wednesday a joint statement from the Ministry of Finance and the Bank of France said that they might have to intervene "in the national interest."

"The public authorities hope that all the actors involved will help in producing solutions that fully respect the financial community, the industrial and social interests involved as well as the national interest," the statement said.

The French Government is concerned that the latest move could undermine its plans to privatise the state-owned Credit Lyonnais. BNP, Societe Generale, and Paribas are the three most likely organisations to acquire a stake in the loss-making bank.

The government attitude was in marked contrast to the warm endorsement of the friendly Paribas-SocGen merger. President Jacques Chirac praised that move for producing a "national champion."

Europe's biggest bank

BNP said its move was a response to the launch of the euro, which had resulted in rapid changes in European banking. Chairman Michel Pebereau insists that the the deal would enhance shareholder value.

"This is the best possible combination for the French banking system," he said. .

If successful, the merger would create one of the largest banks in the world. It would overshadow the planned merger of Deutsche Bank and America's Bankers Trust.

BBC Correspondent Tanya Beckett: Creating the biggest bank in the world won't be without its problems

BNP's bid would be the second-highest price ever paid in a bank deal, just behind the £25.9bn merger between NationsBank and BankAmerica last year.

The hostile bid is an audacious attempt to take over two banks that each are about equal in size to BNP.

It is also a sign of a new aggressiveness on European stock markets since the launch of the single currency. Other hostile takeover bids have emerged, most notably by Olivetti who is seeking to buy its much larger rival Telecom Italia.