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TRIESTE, Italy -- The board of Assicurazioni Generali S.p.A. has approved raising more than $12 billion to make acquisitions, which may translate into more funds behind its hostile takeover bid for French insurer Assurances Generales de France.

The news that Generali is bolstering its resources has triggered expectations of a bidding war for the French insurer, whose management already has rejected the Generali offer in favor of a friendly takeover bid from Allianz A.G. Holding (BI, Nov. 24). The bids ultimately must win the support of shareholders and the French government.

Generali's move to raise funds has also sparked speculation that the Italian insurer already may be looking at other acquisition targets in the event its AGF bid fails.

Generali will decide whether to raise or withdraw its bid for AGF once the French Finance Ministry rules on the acceptability of Generali's first bid, which was made in mid-October.

"We haven't received any decision on the validity of our bid (from the Finance Ministry) so the counteroffer from Allianz legally doesn't exist," said Benito Pagnanelli, deputy general manager of Generali in Trieste.

The French Finance Ministry is expected to issue a decision on Generali's offer perhaps as early as this week.

Generali's board of directors voted Nov. 22 to seek shareholder approval to issue 300 million new shares. The issue price of the new shares will be 25,000 lire ($14.68), compared with a Nov. 21 trading price of 38,700 lire ($22.72) per share, confirmed Mr. Pagnanelli. At that price, the offering would raise 7.50 trillion lire ($4.40 billion).

In addition, the Generali board approved asking shareholders for power to issue up to 3 trillion lire of debentures, making nearly 10 trillion lire ($5.87 billion) in new capital.

Funds in addition to existing resources of 4 trillion lire ($2.35 billion) set aside for the AGF acquisition can be raised from credit lines and bank borrowing, ultimately making more than 21 trillion lire ($12.34 billion) available to Generali for acquisitions, the insurer said.

"It's obvious that the more money you have, the stronger you are. This could not just be for buying AGF. There are other companies" that Generali also may be interested in acquiring, said Mr. Pagnanelli.

He would not identify any other potential targets.

Some stock market analysts, though, believe that Generali may seek to strengthen its position in Eastern Europe as well as Western Europe.

"They want something big in Eastern Europe. Their whole history is linked to Eastern Europe," said Michael Lindsay, insurance analyst at investment bank Lehman Brothers in London.

Generali currently has a stake in six companies in Eastern Europe together writing $185 million in premiums, according to the insurer. Its largest presence in that region is in Hungary, where a joint venture with insurer Allami Biztosito has an 18% share of the market.

The size of Generali's planned capital increase, however, has some analysts questioning the strength of Generali's bid vs. Allianz.

"Generali has almost a mythic status in Italy," according to Tim Dawson, insurance analyst at London stockbroker Barclay de Zoete Wedd. But investor interest in Generali, even in Italy, is beginning to decline as opportunities more attractive than insurance arise in newly privatized industries, he said.

"People always assume that the position of the Italians (in the bid for AGF) is stronger than it seems. This will end up as a head-to-head battle, but my sense is that Allianz is the more credible bidder," said Mr. Dawson.

A lack of information from Generali about its intentions in light of the Allianz offer also has left some stock analysts unimpressed. Both Allianz and AGF have made presentations to investment analysts in London and Paris, while Generali has not.

"You can't say to shareholders we want more money from you but then still be secretive," said Mr. Lindsay.

At the same time, some analysts say it would not take much for Generali to close the gap with Allianz's bid.

"I don't think there's much difference between the two. Generali is offering 300 French francs per share ($51.57) for 100% of AGF, and Allianz is offering 320 francs ($55) for 51% with a guarantee of 360 francs ($61.88) in June 2000. There's not much difference in today's money. I would find it ridiculous if Generali didn't come back," Mr. Lindsay said.

Some analysts also said they were surprised that Allianz will raise part of the funds it needs through a rights issue, since the company is widely regarded as cash-rich.

But an Allianz spokesman in Munich cautioned against the assumption. "We are constantly overestimated," he said.

Allianz will raise 9.2 billion deutsche marks ($5.29 billion) for its acquisition in two ways, the spokesman explained. About 4.2 billion deutsche marks ($2.42 billion) will come from internal funds, 3 billion deutsche marks ($1.73 billion) from a rights issue and 2 billion deutsche marks in an exchangeable bond issued by the insurer and/or a warrant.

Mr. Lindsay noted that there is a trend in the European insurance market for larger companies to acquire a 51% controlling stake in a smaller group and allow the subsidiary certain autonomy.

"This substantially reduces up-front costs," he said.

However, Mr. Lindsay said he believes that Generali could win the battle for AGF by offering a much larger share price for 75% of AGF's stock. If Allianz really wanted to buy AGF, he said, it would have bid a higher price from the outset, as that has been the company's acquisition strategy to date, he contends.

Meanwhile, all three companies have rebutted rumors that they might agree to have Generali acquire shares now held by Allianz and AGF in German insurer Aachener & Munchener Beteiligungs.

Discounting any pending deal on AMB, Generali's Mr. Pagnanelli said that "there will be a long, long negotiation. All options are open. The situation could evolve in a way that no one could expect."

The Allianz spokesman said that under French law only the two parties involved in a takeover could discuss such a deal. Talks on ceding shares in AMB to a third party like Generali would, therefore, not be possible, he said. "The two parties cannot make that sort of a contract" until after a takeover is completed, the spokesman said.

AGF Chairman Antoine Jeancourt-Galignani said in an interview with a German newspaper that AGF is prepared to sell its 33% stake in AMB. Allianz noted in its Nov. 17 bid announcement that AMB was not a strategic asset.