He Sabadell confirmed this Wednesday that the BBVA assured him on Sunday, one day before the Catalan bank flatly rejected his proposed merger by absorption, that the group of Basque origin had “nono room for improvement its economic terms”. This was announced in a statement to the National Securities Market Commission (CNMV) in which it revealed the “literal text” of the communication that the president of BBVA, Carlos Torres Vilasent the Sabadell player, Josep Oliú“without prior contact or exchange between the parties.”


The Catalan bank has justified the unusual revelation of that letter, advanced by 'El Mundo', in the need for the “market to have complete and transparent information” in response to the “information that appeared in the press.” The entity has published the letter without the National Securities Market Commission (CNMV) asked him, although it is possible that if he had not done so, the supervisor would have ended up demanding it due to the relevance of the information. In any case, Sabadell's movement increases the pressure about BBVA, which still has not been pronounced since its rival's board rejected its merger offer on Monday.

In principle, BBVA has three options: desistlaunch a purchase offer (takeover) hostile in the terms already proposed last week and rejected by the Sabadell council, or improve the proposal so that its competing entity has to speak out again. However, the confirmation that Torres Vila assured that he had no room for improvement places him in a position complicated to justify a hypothetical increase in the economic conditions of the supply. Hostile takeovers, for their part, have few precedents in banking and they don't usually like to the sector supervisors, while giving up would have a cost for image of the leadership of the entity, which already tried unsuccessfully to absorb Sabadell at the end of 2020.

Share value

For now, the Sabadell actions have fallen 4.33% in the stock market this Wednesday, while those of BBVA They have risen 0.93%. The shares of the Catalan entity, however, remain 3.5% above the price recorded the day before its competitor's offer (1,799 euros, compared to 1,737 at that time). The market seems to be waiting for BBVA's response, as well as assessing that Sabadell, despite rejecting the merger, has quantified for the first time in 2.4 billion of euros the remuneration that he plans to give to its shareholders between this year and next.


The BBVA share, for its part, remains 5.9% below the level prior to the offer (10.29 euros compared to 10.9), which confirms that the price seems to reflect the uncertainty of investors about what step he will take regarding Sabadell and what he will do with his excess capital in case of abandoning the merger (that is, if it will attempt another operation or continue to use it to compensate its owners). So far this year, the Catalan bank has accumulated a rise of 65% in the stock market, while the one of Basque origin has risen 29.6%.

Justification

In the letter revealed by Sabadell, Torres Vila justified why it could not improve its offer in the stock market performance, precisely. The exchange of shares through which he proposed to carry out the merger, he argued, represented a cousin compared to the previous price of Sabadell (Monday of last week) of 30%, but it was 48% about “mid April”when the advice of BBVA “considered” the offer. That 48%, he continued, “far exceeded” the bonus that the council considered offering in the middle of last month “to start negotiations.” “That is, in our proposal we have already exhausted all the space that we had, having maintained a 30% premium despite the great relative rise in your stock from mid-April to the 29th,” the banker justified.

Torres Vila also cited the evolution of the shares of both banks since announcing their merger offer. “He market has also made it clear that there is no more possibility of rise”, he maintained, since the BBVA price fell by more than 6 billion. “This situation absolutely prevents us from being able to pay more premium than what we already offer, because if we did so it is foreseeable that our value would fall again, even by an amount greater than the increase in premium that we made. The messages received from investors and analysts These five days are equally clear in this sense, and therefore coincide with our analyzes regarding the economic impact of the operation for BBVA,” he defended.

Implications

Torres Vila's arguments imply that the second largest Spanish bank did not want to raise the exchange equation of shares (one from BBVA for every 4.83 from Sabadell) to increase the premium, as this would mean giving the shareholders of the Catalan entity more than expected 16% of the merged group. Furthermore, it would foreseeably eliminate the already small negative goodwill to finance cost adjustments (staff and offices) and valuation of assets that economically justify any merger, while increasing the negative impact on the capital of the group. It would also worsen the return of investment provided by BBVA.


Likewise, the letter from the president of BBVA indicates that the group began preparing the operation weeks ago. Sabadell official sources have denied that at some point there has been a negotiation. Other sources suggest that Torres invited Oliú to talk about the possibility of a merger, something common among bankers, but which Oliú called on wait at least until the presentation of the results of the first quarter. Just one day after announcing its accounts, a leak led BBVA to present its offer to Sabadell and announce it publicly (including its details), when it is usual to carry out these processes with greater discretion and reveal them when they are more advanced. This attitude of BBVA caused discomfort in the Vallesano bank, which finally rejected the offer because it understood that it “significantly undervalues” its entity.

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