Like any takeover bid, and in this case even more so as it is a deeply regulated sector, the proposed purchase of Banco Sabadell by BBVA is subject to numerous procedures and legal obstacles before reaching a successful conclusion. And hostilities between law firms have already begun. The first shot came, in this case, from the province of Barcelona.

Banco Sabadell reported on Thursday night that BBVA has…

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Like any takeover bid, and in this case even more so as it is a deeply regulated sector, the proposed purchase of Banco Sabadell by BBVA is subject to numerous procedures and legal obstacles before reaching a successful conclusion. And hostilities between law firms have already begun. The first shot came, in this case, from the province of Barcelona.

Banco Sabadell denounced on Thursday night that BBVA had violated takeover regulations by providing, in the conference with president Carlos Torres's analysts, information that was not contained in the offer announcement. Article 32.1 of the takeover law does indicate that from the public announcement of a takeover bid until its presentation, the buyer and the people with whom it works in the operation “shall refrain from disseminating or publishing by any means any data or information that does not appear in the previous announcement of the offer.”

The National Securities Market Commission (CNMV) will analyze the complaint from Banco Sabadell, and will have to decide whether the information provided at the conference, specifically, the references to BBVA contacts with investors, implies non-compliance. Contacts of listed companies with investors and analysts are common (whether or not there is a takeover bid involved) and admitted by supervisors as long as material and concrete information is not provided. That is, you can tell an analyst that sales in China are not going well, but not give them a new profit forecast. It remains to be seen in which category Torres' words fall, although the infringement, if it existed, would not have the dimension to stop the takeover. But there are many other obstacles that BBVA must overcome.

The approval of the takeover

In the purchase and absorption process, the main role of the CNMV as a supervisor refers to the approval of the offer. In this step, BBVA must provide the supervisor with financial guarantees that it can make the purchase. And, above all, you must send the CNMV an informative brochure with all the information that the supervisor considers should be in the hands of the investor, in addition to all the documentation required by the Commission. With these papers in hand, the supervisor must decide whether or not to approve the operation.

With the takeover bid underway, the CNMV will be the arbiter of potential conflicts between the parties or, where appropriate, the arrival of a competing offer. But, particularly once the brochure is approved, its role is highly valued. If the offer is successful, BBVA will have the majority of Banco Sabadell's capital and will be able to promote a merger by absorption. As BBVA is also a listed company, the CNMV does not have to verify the conditions of said merger.

The European Central Bank

Once BBVA has made the official announcement of the takeover bid to the CNMV, the legal process is already underway and cannot be stopped so easily, although it will take a long authorization process that can last several months. In parallel with the path that BBVA's takeover bid with the markets regulator follows, the offer will have to receive the approval of the European Central Bank as banking regulator, an authorization to which the takeover bid will be conditional. That is, if the ECB does not give the green light, the operation is cancelled. The vice president of the European monetary authority, Luis de Guindos, recalled this week that the ECB “will have to authorize the operation” to guarantee financial stability. According to European regulations, the ECB must approve acquisitions of qualified stakes in credit institutions when they are equal to or greater than 10% of the shares, a clearly higher percentage in the case of BBVA and Sabadell (the minimum will be 50.01%).

BBVA will thus have to notify the national supervisor (the Bank of Spain) of its intention to acquire Sabadell. Once the application has been submitted, the national supervisor carries out a preliminary assessment and prepares a draft proposal, which must be approved by the ECB. In collaboration with the national supervisor, the ECB carries out its own assessment and informs the acquirer and the national supervisors of the result. To do so, the ECB will have 60 business days, and may include conditions in decisions on an application. Given the presence of Banco Sabadell in the United Kingdom, the operation must also be verified by the British Prudential Regulation Authority, a permit on which the takeover bid will also be conditional, according to BBVA.

Competition analysis

The competition authorities of Spain and the United Kingdom (through Sabadell's TSB subsidiary) will also have a say in the merger, and BBVA will also condition its offer to this green light. In Spain, the entity chaired by Carlos Torres will notify the operation to the National Markets and Competition Commission (CNMC), the competent national body, while in the United Kingdom, the person in charge will be the United Kingdom Markets and Competition Authority. (CMA). The CNMC will analyze, among others, data from the retail banking market, corporate banking, investment banking, insurance business, plans and funds… The objective of the study will be to determine if the union of the two entities will pose some type of threat for competition in the national market. The regulator will look at the market shares that result after the merger, whether or not they are relevant by territory and business area, and also whether there are important competitors.

If the CNMC considers any aspect of concern in the merged entity, it may condition its approval on certain commitments being met. For example, in cases of previous bank mergers, that of CaixaBank and Bankia and that of Unicaja and Liberbank, Competition authorized the operations with conditions. In the case of Caixabank and Bankia, the organization identified 86 postal codes in which the resulting entity was going to be in a monopoly situation (it would be the only entity) or duopoly. Faced with this situation, the parties proposed a series of compromises and measures such as maintaining the same conditions for clients in those areas, not charging for over-the-counter operations, access to ATMs… which the CNMC accepted.

Government green light

The final, and definitive, filter for the eventual merger is in the hands of the Government, which also has greater room for maneuver to make its decision. The law on the organization, supervision and solvency of credit institutions indicates that “it will be up to the Minister of Economy and Competitiveness to authorize merger, spin-off or global or partial transfer of assets and liabilities in which a bank intervenes, or any agreement it has. economic or legal effects analogous to the previous ones.” To justify its decision, it will require reports from the Bank of Spain, the Executive Service of the Commission for the Prevention of Money Laundering and Monetary Offenses, the National Securities Market Commission and the General Directorate of Insurance and Pension Funds. BBVA must send to the Treasury the agreements of the meetings, the merger project, expert reports and, in general, everything that the competent body considers necessary for the analysis of the operation.

It is the final step of the absorption, so it may take half a year to arrive (according to BBVA calculations) but it is also the one that is least legally valued. The Government will make one decision or another based on economic policy criteria. “This permit has to do with a transversal vision; Each supervisor analyzes the aspects that are within his competence. In this case, we analyze how the operation affects employment, the territorial implementation of the offices, since financial inclusion is a priority, or the evolution of credit.” The processing of this permit must be resolved within a maximum period of 12 months, according to the law: “When the application is not resolved within the previous period, it may be considered rejected.”

The judicial risks

Given the bitter confrontation between both entities, it is not ruled out that the soap opera ends up in court, as happened with the battle for control of Endesa in 2005 (which was not resolved until two years later). Endesa then presented an appeal before the National Court in response to a letter in which the then president of the CNMV, Manuel Conthe, recalled the council's 'duty of passivity' in the face of the Gas Natural takeover bid. The Court provisionally suspended the effects of the letter (despite it being a letter) and reaffirmed its decision in a second order, but the decision complicated the process. This ended with Endesa negotiating a counter-takeover bid by the German company E.on and, later, with the maneuver by Acciona and Enel to torpedo the German takeover bid. A maneuver that ended up causing the resignation of Manuel Conthe as head of the CNMV, who failed to get the Commission's council to sanction Acciona and Enel for the operation.

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