BBVA has launched a hostile takeover bid for Sabadell. Specifically, the bank led by Carlos Torres has presented a public offer to acquire shares at the exact price at which it proposed a friendly merger last week, one BBVA title for every 4.83 Sabadell shares, and that…

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BBVA has launched a hostile takeover bid for Sabadell. Specifically, the bank led by Carlos Torres has presented a public offer for the acquisition of shares at the exact price at which it proposed a friendly merger last week, one BBVA title for every 4.83 Sabadell shares, and that the bank's board Catalan considered that it underestimates the value of the entity. This morning, Sabadell sources have insisted on their rejection of the operation and refer to what was already expressed last Monday. Meanwhile, in the market, BBVA shares fall more than 5%, while those of Sabadell rise 3%.

The Government also opposes the operation. It categorically rejects the takeover bid, both “in the forms” that BBVA has chosen to launch it and “in substance,” according to official sources from the Ministry of Economy, Tourism and Commerce. The department headed by Carlos Cuerpo considers that the absorption of Sabadell “introduces potential harmful effects” in the financial system, increases banking concentration and affects territorial cohesion. Carlos Torres, president of BBVA, responded to the Ministry of Economy during his summit with shareholders and believes that the Executive's reaction corresponds with the political moment, marked by the Catalan elections on Sunday, and that he trusts that his position will change.

BBVA's move leaves the decision up to the shareholders of Banco Sabadell, who will ultimately have to decide whether the entity is worth more alone, as the board of the Catalan group defends, or with the help of BBVA. Sabadell does not have a controlling shareholder, after the progressive departure of the Catalan fortunes that played that role, and the majority of its shareholding, 53%, is in the hands of large investment funds, with the remaining 47% being investors. retailers. BBVA conditions the success of the takeover bid on obtaining 50.01% of the capital.

Banco Sabadell headquarters in Barcelona, ​​on May 2. Nacho Doce (REUTERS)

The shareholders of Banco Sabadell – many of them are also present in the capital of BBVA, including large investment funds such as BlackRock or Vanguard – must decide, therefore, whether to accept the offer, which according to the closing prices The Stock Market on Wednesday values ​​the Catalan entity at almost 11.6 billion euros. It contains a premium of 18% over the closing of the shares on Wednesday, a premium that reached 30% compared to the prices before the merger rumors, and will mean that Sabadell shareholders take 16% of the new BBVA merged. The news has caught the management team of the Catalan bank in a round of meetings with investors in London, precisely with the aim of seducing them to bet on the bank's solo venture. Torres, for his part, has told the analysts that they have maintained a first approach to Sabadell shareholders and his opinion is positive.

“We present Banco Sabadell shareholders with an extraordinarily attractive offer to create an entity with greater scale in one of our most important markets,” said the president of BBVA, in the press release sent by his entity. “Together we will have a greater positive impact in the territories in which we operate, with an additional credit granting capacity of 5,000 million euros per year in Spain,” he added. “All interest groups will benefit from this operation,” stated the CEO of BBVA, Onur Genç.

BBVA has also provided some additional details about the operation. Specifically, he has indicated that the planned synergies, of 850 million euros per year, will be fully activated in the third year of the operation, while in the first year they will only be 25% operational. These synergies are divided into 750 million per year due to lower operating costs (offices and personnel) and another 100 million due to lower financing costs. Likewise, the bank maintains its forecast of restructuring costs of 1,450 million euros, which it plans to charge to the 2025 accounts if the operation is successful.

The format of the operation, as a takeover bid instead of a friendly merger, has an impact on capital: the ratio will drop by 44 basis points (compared to the 30 expected) if BBVA takes over 50.01% of capital, since solvency rules penalize controlling stakes. This penalty will be limited to 30 basis points when he fully integrates Sabadell. BBVA is committed to maintaining a pay out (percentage of profit that goes to dividends and share buybacks) of between 40% and 50%, and undertakes to distribute any excess capital that exceeds 12%.

The fundamental difference between a merger and a hostile takeover is the existence or not of consensus between the governing bodies of both entities: in a merger, the boards of directors agree on a common merger project that they then present to their respective shareholders for approval in an extraordinary meeting. The takeover bid (which can be both friendly and hostile) is an operation whose end is much more uncertain: as the offer is addressed individually to the shareholders, the result will depend on the percentage of capital that agrees to sell their shares.

The hostilities between BBVA and Sabadell have been growing at times in recent days. The entity chaired by Carlos Torres first approached in a friendly manner, with a letter sent to the board of directors of Sabadell that proposed a merger entirely with this exchange of shares, in addition to three positions on the board of directors of the resulting bank.

The president of Banco Sabadell, Josep Oliu, at an event in Alicante in 2023. Europa Press News (Europa Press via Getty Images)

The bank chaired by Josep Oliu took about a week to respond and did so forcefully. Sabadell considers that this exchange ratio, at a rate of one BBVA title for every 4.83 Sabadell shares, “significantly undervalues” the entity's project and its “growth prospects”, which is why it chose to continue independent. In particular, the Catalan bank criticized the fact that the offer did not contain a cash portion, which made the bank's valuation depend on the BBVA quote. Instead, it promised to distribute 2.4 billion to its shareholders in two years.

Tensions reached a peak on Wednesday. El Sabadell published a e-mail that its president received from Torres on Sunday night, hours before the board of directors meeting in which the bank was to evaluate the offer. In it, Torres warned Oliu that BBVA has no room to improve the offer already submitted. This put an end to analysts' speculation that the offer could improve.

In this context, BBVA's move is completely unprecedented for the Spanish market, which traditionally repels hostile takeover bids. In the banking sector, the last known offer of this type is that of Banco Bilbao for Banesto in the 1980s, which ultimately failed. The takeover bid, in any case, must obtain authorizations from the National Securities Market Commission (CNMV), the National Markets and Competition Commission (CNMC) and the European Central Bank. Once the takeover bid is completed, BBVA's idea is to merge the two entities, which will require a yes from the Ministry of Economy.

The launch of the takeover bid by BBVA, which according to the law cannot be withdrawn, begins a long process until its resolution, which can exceed six months. BBVA must now send all the offer documentation to the CNMV within a month and this supervisory body has five days to accept it for processing. Afterwards, the CNMV has a period of 20 days to analyze the offer, which can be extended at will and usually takes more than six months. Once this step has been completed, which will likely arrive once all the rest of the authorizations have been obtained, a period of acceptance of the offer will open, between 15 and 70 days.

During this time, the takeover law constrains the Sabadell council's ability to move to defend itself. The rule requires it to be subject to the so-called duty of passivity, which prevents it from increasing capital or pursuing other entities to increase the bank's perimeter.

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