Today, Fortis Holding (Fortis SA/NV and Fortis Bank N.V.) posted the Agenda for the General Meeting of Shareholders of Fortis SA/NV and Fortis N.V to be held April 8-9, and the related Shareholder Circular reflecting the details and newly revised terms with France's BNP Paribas (BNP) and the Belgian government (through its ownership of the Federal Participation and Investment Corporation (FPIM)) with respect to the proposed sale of certain Fortis operations. The new deal between the parties resulted from last month's rejection by Fortis SA/NV shareholders of the then-proposed deal terms. The new agreement, subject to Fortis SA/NV and Fortis N.V. shareholder approval by April 19, 2009, is summarized below:

1) Fortis Bank SA/NV - Seeking to "[p]artner Fortis Bank SA/NV with a strong player in the banking industry," while enabling the Belgian government to maintain a "blocking minority" in Fortis Bank, the FPIM will transfer 74.9% of Fortis Bank SA/NV to BNP in exchange for approximately 121.2 million BNP shares. The transfer will occur in two stages with FPIM first transferring 54.55% of the shares in Fortis Bank SA/NV at the closing of the Agreement for approximately 88.24 million BNP shares, and the remaining 20.39% of shares will be transferred to BNP for approximately 33 million BNP shares upon BNP shareholder approval. In the event BNP shareholders fail to approve the transfer of the second tranche, BNP has agreed to purchase the remaining Fortis Bank shares for approximately €2.24 billion in cash.

2) Call Option - As part of FPIM's transfer of 74.9% of Fortis Bank SA/NV to BNP in exchange for BNP shares, the FPIM will grant Fortis SA/NV a call option entitling Fortis SA/NV to receive the difference between the stock price of the BNP shares at the time of exercise of the option and €68, settled in cash. Fortis SA/NV will be entitled to exercise this call option at any time during the six years following the expiration of a two-year lock-up period. This call option allows Fortis SA/NV shareholders to benefit from a potential increase in the value of BNP shares acquired by the FPIM. The estimated fair value of the option as of March 12, 2009, assuming BNP is able to transfer all 121.2 million shares to SFPI, was €504 million. In addition, Fortis Holding will also have certain anti-dilution rights "aimed at preserving the value" of the option, upon the occurrence of certain BNP corporate events (such as capital increases with preferential subscription rights, extraordinary dividends, mergers or splits). However, the anti-dilution protection will not apply in the case of a BNP capital increase without preferential subscription rights or in any other case where the FPIM itself would be diluted as a BNP shareholder without compensation.

3) Fortis Insurance Belgium - Fortis Insurance N.V. will sell 25% +1 share of Fortis Insurance Belgium to Fortis Bank SA/NV for €1.375 billion. The existing agreement between Fortis Bank SA/NV and Fortis Insurance Belgium for the distribution of insurance products through Fortis Bank SA/NV will remain in place until at least the end of 2020. Fortis Insurance and BNP have also "[u]ndertaken to explore further areas of cooperation, in particular in the automobile and housing sector" in countries other than France, Belgium, Turkey and "any other country where BNP or the Fortis Group's existing agreements with third parties would prohibit such cooperation." As a result, Fortis Holding will become BNP's "preferred commercial partner for non-life insurance products." Finally, BNP and Fortis Holding will also enter into a shareholder's agreement providing for customary rights (rights of first refusal and tag along rights) and the following specific items:  

  • Fortis Bank SA/NV will be entitled to appoint two non-executive directors to the board of Fortis Insurance Belgium as long as Fortis Bank owns at least 15% of the shares of Fortis Insurance, and to appoint one non-executive director provided Fortis Bank owns greater than 5% but less than 15% of Fortis Insurance. In addition Fortis Bank will be entitled to one member on certain operational committees within Fortis Insurance.
  • Fortis Bank SA/NV may not sell its 25% +1 share stake in Fortis Insurance Belgium until January 1, 2018.

4) Structured Credit Portfolio - The Agreement provides for a special purpose vehicle, Royal Park Investments SA/NV (SPV) to purchase a selected structured credit portfolio of Fortis Bank valued at approximately €11.4 billion, rather than the previously agreed €10.4 billion. To finance the SPV, Fortis Holding will provide €760 million in equity (through a €1 billion loan from Fortis Bank guaranteed by the Belgian government), BNP will provide €200 million in equity and the FPIM will provide €740 million in equity, with the remainder of the funding provided by way of debt financing from BNP and Fortis Bank. The debt financing will be provided in two tranches, a senior tranche of €4.850 billion (€485 million by BNP, and €4.365 billion by Fortis Bank guaranteed by the Belgian government) and a super senior tranche of €4.850 billion provided entirely by Fortis Bank. In addition, the parties have agreed to a "loss absorption" mechanism in respect of the senior debt pursuant to which losses in excess of the SPV's equity will be set off against such senior debt, provided however, that if there are subsequent accounting profits resulting from repayment of the underlying assets, the portion of the senior debt on which any losses have been imputed in previous years will first be reinstated with excess profits (if any) paid to SPV shareholders, pro rata, upon liquidation of the SPV.