The board of directors of Sabadell This Monday he flatly rejected the offer of fusion by absortion “unsolicited, indicative and conditional” that the BBVA because he understands that “significantly undervalues” your project and its growth prospects. After taking almost a week despite the rush of its competitor, the highest governing body of the entity of Catalan origin has opted for the strongest option: nor accept the offer (it understands that it can generate more value for its shareholders alone) nor open to negotiate to improve it. The unknown now is whether BBVA will launch a hostile takeover under the conditions already proposed (something with few precedents in the banking sector and even fewer successful cases), he will unilaterally improve it to try to convince Sabadell, or he will give up. The bank has not given any clues. “We regret that the board of Banco Sabadell has rejected a so attractive offer“, sources from the group have lamented.


As 'Activos', a medium that, like this newspaper, belongs to the Prensa Ibérica group, announced, Sabadell was leaning towards face plant to BBVA. “The council has full confidence in the growth strategy of Banco Sabadell and its financial objectives, and is of the opinion that Banco Sabadell's strategy as an independent entity will generate greater value for its shareholders. Likewise, the significant drop and the volatility of the price of BBVA action In recent days it generates a additional uncertainty on the value of the proposal”, the entity has stated in a statement. To convince its own shareholders, it has also reiterated its commitment to recurrently distribute to them the excess capital above 13%, which according to its calculations will amount to some 2.4 billion of euros this year and next, adding dividends.

He BBVA was forced last Tuesday by a leak to present a merger offer to Sabadell and announce it publicly almost at the same time. Less than 24 hours later and despite not being obliged to do so, he revealed the details. The second Spanish bank, thus, proposed to the fourth in the country a share exchange What does it mean to value Sabadell at a 30% more than its stock price last Monday and give its shareholders the 16% of the new entity resulting (despite providing the 22.7% of assets). He also opened up to granting him a vice presidency to a director of its competitor (predictably intended for its president, Josep Oliú), among other details.

The actions of the group chaired by Carlos Torres Vila were perceived as aggressive by the Sabadell leadership, which understands that BBVA wanted pressure its shareholders revealing the details of the offer. His council held a meeting last Tuesday to take note of his rival's proposal, but has given itself time to make a statement until probe to their principals owners and count on the advisor reports who hired last week: Goldman Sachs and Morgan Stanley (financial) and Uría and Menendez (legal).


Rebalancing of forces

Since the offer was announced, the shares of the Sabadell they have up 8.8%up to 1.89 euros (which implies a stock market value of 10,282 million), while those of BBVA they have fell 9.7%up to 9.84 euros (57,445 million). This proves that the market's first assessment is that the operation would be initially more favorable for Sabadell shareholders, although with doubts on whether it would go ahead (the titles are far from the proposed 30% premium). On the contrary, the fall of BBVA indicates that investors they don't see clearly the short-term advantage for their owners (who would see how reduces excess capital of the bank with which they are remunerated and they would face the usual execution risks that in this type of operations threaten to make it difficult to achieve the expected benefits).

The BBVA proposal involves valuing Sabadell's shares in 2.2581 euros, compared to the 1.737 euros at which they were quoted last Monday and the target price of about 1.85 euros given by the analyst consensus, according to S&P Global. The Basque group values ​​Catalan in some 12,284 million euroscompared to a stock price of 9,623 million that I had before the offer was announced. It will be necessary to see if the BBVA will be willing to improve its proposal or launch a hostile takeover. As you have stated, the operation is already going to cost you much more that when in 2020 Previous negotiations were broken, according to some sources for a figure close to 200 million.

Then Sabadell was going through a bad time: it was worth 1.7 billion on the stock market before the contacts were announced and aspired to be valued at just under 2.5 billion, which BBVA did not accept. Since then, Sabadell's stock market value has shot thanks to the change in the model of governance (Oliú ceased to be an executive and the CEO, Jaume Guardiola, was replaced by César González Bueno), the restructuring of business and the favorable wind of rate rise of interest. Until last Monday, its price had up 452% and that of its competitor had also improved, but less (a 200%to 63,633 million), which also makes the operation more expensive, even more so with the subsequent evolution of the titles of both entities.

Convince the shareholder

BBVA, in fact, effort last week for convince your shareholders that the absorption of Sabadell is good for them. Thus, he assured that the earnings per share would increase from the first year after the merger until reaching an improvement of 3.5% when the expected synergies are achieved. He estimated that he would achieve a cost reduction operations of some 850 million per year (achieved through office closure and the downsizing in the network and central services). To do this, you would have to invest 1.45 billion and its capital would be reduced by 0.3 percentage points. The price offered is very close to Sabadell's book value (2.27 euros per share, 12,349 million in total), so the negative goodwill To finance these cuts it would be very small.


BBVA also calculated that the tangible book value per share would increase around 1% on the date of the merger and that the operation would have a return of investment close to 20% in 2026. The figures, however, did not take into account the cost to break any of the agreements bancassurance of the two banks, presumably the one that Sabadell has had with Zurich since 2008. He also assured that the new bank would have the “ambition” of being the largest in the euro zone by stock market value and would give “high remuneration” to its shareholders, “despite a macroeconomic context with prospects of rate cuts interest rates and a foreseeable lower growth of credit investment in Europe”.

One trillion assets

If the operation were to finally go ahead, something that would be delayed for several months, the sum of the banks would give rise to an entity with just over a trillion euros in total assets (before the adjustments typical of this type of operations) and about 626 billion assets in Spain. The new bank could thus narrowly surpass CaixaBank (613,457 million total assets) as the leading entity in the Spanish market, in addition to Santander (468,807 million in the country, compared to 452,227 million for BBVA). It would also reduce positions with respect to Santander as the first Spanish bank (it has 1.8 billion in total assets, compared to BBVA's 801,690 million) and could compete to be the third in Europe in stock market value after the French BNP Paribas and Santander itself.

The absorption of Sabadell would allow BBVA to grow in the profitable business of small and medium companiesas well as balancing the weight of your different geographies by gaining quota in Spain and entering the United Kingdom (Mexico accounted for 56.5% of the group's total profit until March, compared to 28.4% in Spain). The Basque bank launched winks to the Government: There would be a “greater contribution via taxes” and the new bank would have the capacity to provide 5,000 million euros more per year in credit. However, the Minister of Economy, Carlos Bodyhas already made it clear that he is concerned about maintaining a “competitive situation in the financial sector” if the operation goes ahead.

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