The president of BBVA, Carlos Torres Vila

Following the refusal of the board of directors of Banco Sabadell to accept the merger offer last Monday, the board of directors of BBVA has decided to formulate a hostile takeover bid (OPA) for 100% of the shares of Banco Sabadell, according to has notified the National Securities Market Commission (CNMV).

In the new step taken by BBVA, the hostile offer, contains the same exchange of shares to Banco Sabadell shareholders: one new title for every 4.83 of Sabadell, maintaining the same 30% premium over the closing price of both entities on April 29; 42% on the weighted average prices of the last month; and 50% on the weighted average prices of the last three months. In addition, Banco Sabadell shareholders will have a 16% stake in the resulting entity. The equivalent price of the cash consideration is 2.12 euros per share of the entity of Catalan origin. With this offer, according to stock market closing prices on Wednesday, the Catalan entity is valued at almost 11.6 billion euros.

The response to this hostel takeover bid by Banco Sabadell has been the same as last Monday, when the offer was rejected on the grounds that the entity was undervalued and it was betting on its independent growth.

The market has also given its opinion to this movement by BBVA, with a 4.8% drop in the shares of the bank chaired by Carlos Torres, compared to a 5% rise in the shares of Josep Oliu's entity.

Also from the Government, despite being an operation between private entities, the hostile takeover bid by BBVA is categorically rejected. Specifically, the Ministry of Economy considers that this possible purchase “introduces potential harmful effects” in the financial system, increases banking concentration and affects territorial cohesion.

If in the previous (friendly) offer it was the board of directors of Banco Sabadell that should have given the response, in the hostile offer it must be the shareholders of the Catalan entity who decide. BBVA has set its objective to ensure that its offer succeeds in obtaining the favorable vote of 50.01% of the shareholders. It is worth remembering that Banco Sabadell does not currently have a controlling shareholder (the great Catalan fortunes were gradually leaving its shareholding), and 53% of its capital is in the hands of investment funds, while the remaining 47% belongs to to minority shareholders.

The paradox arises that some shareholders of Banco Sabadell are also shareholders of BBVA, as is the case of the BlackRock or Vangard investment funds. “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 Carlos Torres, 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 continues explaining. “All stakeholders will benefit from this operation,” stated BBVA CEO Onur Genç.

850 million annual synergies

In BBVA's new offer there are few differences with respect to the previous one. In their explanatory document they add some additional data such as the 850 million euros per year for the planned synergies, which will be activated from the third year after the merger, being 25% in the first year.

These are divided into 750 million per year for lower operating costs (offices and personnel) and another 100 million for 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.

Also, another difference is that since it is a takeover bid and not a merger, the impact on capital will be a drop in the ratio of 44 basis points (previously it was 30 points) if BBVA achieves 50.01% of the shareholder support. . This drop is justified by the solvency rules that penalize controlling stakes, and the penalty will be 30 basis points at the time of integration.

Likewise, BBVA undertakes to maintain a percentage of the profit that is allocated to dividends and buybacks (known as pay out) of between 40% and 50%, and undertakes to distribute any excess capital that exceeds 12%.

Since BBVA presented its merger offer on April 30, Banco Sabadell has shown absolute rejection, which materialized last Monday, May 6, when the board of directors rejected the offer on the grounds that it was undervalued. to Sabadell and had more possibilities for growth going alone. As if that were not enough, this same Wednesday, he made public a letter sent by Carlos Torres to Josep Oliu on May 5, one day before the board of directors meeting, in which Torres tried to convince them to accept the offer.

The hostile takeover officially presented this Thursday has been the result of these disagreements, and an unknown step, since the last attempt of this type (Banco Bilbado over Banesto in the 1980s) was a real failure.

In addition to the shareholders of Banco Sabadell, it must also be authorized by the National Securities Market Commission (CNMV), the National Markets and Competition Commission (CNMC) and the Ministry of Economy, where Carlos Body has already expressed his disagreement. to this operation due to the banking concentration it entails.

Between six and eight months to have the answer

With the launch of the takeover bid for BBVA, a long process now begins until its resolution, which can exceed six months. The first step will be for BBVA to send all the offer documentation to the CNMV within a month. This supervisor has five days to admit 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.

BBVA plans to present the request for authorization of the takeover bid to the CNMV, together with an explanatory project and other complementary documents, in “the first half” of a maximum period of one month from the date on which the decision has been made public. to formulate the offer.

The BBVA board also agreed to call its general meeting of shareholders to decide on the issuance of new shares in the amount necessary to fully cover the exchange.

In conclusion, this long journey means that BBVA needs to obtain the support of 50.01% of Sabadell's shareholders, the approval by the extraordinary shareholders meeting of a capital increase and the authorizations of the CNMV, CNMC and the Authority of Prudential Regulation of the United Kingdom. Therefore, BBVA estimates that the operation could close between six and eight months.

BBVA expects that the closing of the operation will take place in a period of between six and eight months, once it receives the necessary authorizations. JP Morgan, UBS Europe, Rothschild&Co, Garrigues and DWP advise the bank on the operation.

Torres explains to shareholders that it is “an extraordinarily attractive offer”

“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, Carlos Torres Vila. “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.

The bank believes that the merger would have “very positive” financial impacts thanks to “relevant synergies” and the “complementarity and excellence” of both entities. After the closing of the operation, BBVA would be the second financial entity in Spain –behind CaixaBank–.

With data at the end of 2023, the resulting entity would reach a credit investment of 265,000 million euros and a market share in loans close to 22% in the Spanish market (13.8% BBVA and 8.1% Banco Sabadell).

«They are two very complementary banks, both due to their geographical diversification and their strengths in customer segments. In Spain, Banco Sabadell is a leader in SMEs, with a share of 12.7%, versus 11.5% for BBVA; while BBVA is stronger in retail banking, with a share of 14.7%, compared to 6.3% for Banco Sabadell,” says the entity chaired by Carlos Torres.

BBVA also anticipates that it will maintain its current shareholder remuneration policy, with a 'pay out' of 50%, and its commitment to distribute any excess capital above 12%.

On the other hand, the entity defends that it represents a “clear generation of value” also for BBVA shareholders. Thus, they maintain that the transaction will be positive for earnings per share (EPS) “from the first year” after the subsequent merger of both entities, with an improvement of around 3.5%, once the savings associated with the merger are produced. same, which is estimated at approximately 850 million euros before taxes. Additionally, the tangible book value per share increases around 1% on the date of the merger.

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