BBVA does not give up after the rejection of its merger project by the board of Banco Sabadell. The entity chaired by Carlos Torres has launched a hostile takeover bid in which it offers the shareholders of the Catalan entity the same agreement: the exchange of one BBVA share for 4.83 Sabadell shares, which represents a 30% premium over the closing prices of the two entities on April 29 and 50% over the weighted average of the last three months.

Read here: BBVA confirms the interest of Sabadell investors in the takeover bid and leaves the door open to dialogue

“It is unlikely that this takeover bid will go ahead under these terms because it offers a simple exchange of shares,” he explains. Rafael Alonso, Bankinter analyst. “With yesterday's closings, it implies a premium of 18.4%, but if BBVA fell today, say, -3%, it would be reduced to 15%… and if it fell -5%, it would be only 12.5% …and the logical thing is that today BBVA will fall again, as usually happens with the acquirer when the operation consists only of an exchange of shares (and Sabadell will rise again) and, furthermore, the operation would most likely be dilutive (i.e., it would reduce Earnings Per Share).”

At the moment, as of early this morning, BBVA shares are already down 5.64% to 9.71 euros, while those of Banco Sabadell are up 3.97%, at 1.87 euros.

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Alonso also remembers that “Sabadell's capital is atomized between investment funds that they will probably have come to this same conclusion.”

According to Bankinter estimates, “the merger would be slightly dilutive in 2024/25 (EPS'24e -1.2%; EPS'25e -0.5%), even after fully accepting the 850 million euros of synergies that BBVA claims they would be achieved, although we collect them progressively over 3 years.”

“We keep our recommendation in Neutral in both banks until we are certain that no operation is going to go ahead,” says Alonso.

Now Banco Sabadell has exceeded the target price set by Bankinter (€1.70/share) and BBVA, after the falls in the heat of the presentation of this takeover bid (those from previous days and the one it will suffer today, which we estimate ca.- 5%), reduces its revaluation potential to +3% compared to yesterday's close (Target Price of €10.60/share vs. yesterday's close of €10.29/share)… but we estimate it could expand to ca. +8% after its probable new decline today.”

Oligopoly risk?

For its part, Javier Cabrera, XTB analysthighlights that the conditions proposed in the offer “are the same, except for one important exception: The three board positions that BBVA offered are no longer in the offer, which means that there would be no Sabadell directors in the new entity.” .

BBVA, in addition, “has delved into what this merger would mean, between two banks that according to the Basque entity have a lot of complementarity. Specifically, it would mean having a loan market share in Spain of around 22%, placing it in second position only behind CaixaBank, with 25%.

“From the XTB analysis team we think that this movement was something that the market did not expect and that it indicates to us the conviction that the BBVA board has in the synergies (850 million euros) that could be generated,” highlights Cabrera. “The truth is that the impact that BBVA estimates on the deterioration of its CET1 capital ratio is very small, while at the same time it opens the door to a large entity in terms of market share. The complementarity between both entities is good, with a strong BBVA on an international level, especially in Mexico, and with a Sabadell that would allow it to position itself very well in Spain. Furthermore, this would not affect the remuneration policy of the Basque entity either.”

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From XTB's point of view, “the problems lie in greater market concentration and the regulatory risk of the operation.” On the one hand, “let us remember that the banking sector is already highly oligopolized, with a loan market share of approximately 56% among the first three entities. If this operation is carried out, among the first three entities the share would already reach 64%, which could imply a deterioration in the conditions offered to clients. and a significant decrease in competition.”

In this sense, Cabrera recalls that the remuneration of deposits in Spain continues to be one of the lowest in Europe, “which already gives us clues about the dynamics of the sector and the position of power.”

On the other hand, “we will have to see If regulators accept this operation, not to mention that they also have to reach an acceptance of 50.01%. Therefore, the operation is not yet closed.”

Filippo Maria Alloatti, CFO of Federated Hermes Credit, remember that “it will be a fairly long process.” “The process could take between six and eight months, regulatory approval would take up to six months, and then up to 70 days for the Opening and Takeover Period. In other words, we won't know if BBVA's latest offer is successful for about eight months.”

In that sense, in his opinion the success or not of this takeover bid depends on “the evolution of BBVA shares”. “BBVA's shareholding is mostly retail, while Banco Sabadell's share price is not far from the highs of the last 10 years,” he explains.

Government rejection of the operation

The operation currently has the disapproval of the Government, which sees “potential harmful effects” on the Spanish financial system, as it would mean an increase in the level of concentration “which could have a negative impact on employment and the provision of financial services.” .

Sources from the Ministry of Economy, Commerce and Business explain that the Government rejects BBVA's decision to propose a hostile takeover bid for Sabadell, “both in form and substance.”

The Executive considers that the operation “introduces potential harmful effects in the Spanish financial system”, since “it would mean an increase in the level of concentration that could have a negative impact on employment and the provision of financial services.”

Furthermore, “an excessive level of concentration would introduce an additional potential risk to financial stability, as indicated yesterday by the Governor of the Bank of Spain.” “The operation would also affect territorial cohesion due to the presence of these financial entities in the territory,” these sources point out.

“Spain currently has a strong and solvent financial system. Our duty is to ensure that we maintain a solid financial system that continues to contribute to the growth of our economy and the agenda of financial inclusion and customer protection,” concludes Economía.

In especially harsh terms the second vice president of the Government and Minister of Labor, Yolanda Díaz. Through a message on an operation contrary to the interests of our country. “It would destroy a lot of jobs, cause financial exclusion and more oligopoly.”

In his opinion, the operation “means liquidating Sabadell for the benefit only of the foreign investment funds that own BBVA.”

Criticisms also of the Generalitat of Catalunya. The Minister of Economy and Finance, Natàlia Mas, has expressed the Government's “total” opposition in an interview this Thursday in Catalunya Informació, since it would mean harm to competition, jobs and the financial ecosystem of Catalonia that would end up “paying ” the citizenship.

He president of BBVA, Carlos Torres, wanted to take the edge off this rejection during the conference with analysts, explaining that there is currently “a lot of politicization” with the Catalan elections this Sunday. In his opinion, the Government will end up appreciating the value once all the terms of the operation are “clear.”

“It is good for the country to have such a strong bank that can operate in the European and global market and the Government will surely appreciate the value of this transaction once things become clearer,” he defended.

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