What the board of directors of Banco Sabadell says about the BBVA merger proposal has the market waiting. The bonus, the cash payment and the seats are the three points that can tip the balance. The Council, the entity that presides Josep Oliu has the floor. The behavior on the stock market since it presented the offer means that the real premium offered by BBVA is well below 17%. The operation, if it goes ahead, will be very expensive for the bank chaired by Carlos Torres Vila, they highlight MERCA2 financial sources.

BBVA'S BONUS TO BANCO SABADELL

As published, the board of directors of Banco Sabadell meets this Monday to evaluate the merger offer submitted by BBVA last Tuesday. This involves offering one BBVA share for every 4.83 Sabadell shares, which values ​​the Catalan bank at 11,000 million euros according to the stock market price. It remains to be seen if there is a response, positive, negative or an answer in which they are willing to negotiate.

The real premium is now 7%, based on how both banks are in the stock market. This premium was 17% when BBVA published the offer letter and 30% before it sent this letter to Sabadell.

The fundamental point is in the premium, specifically, if BBVA is willing to raise it and pay in cash, at least part of it. The other issue is that of seats on the council. I don't know what idea BBVA has about the CEO of Banco Sabadell, César González-Bueno, who is doing a good job at the bank, but who, in the opinion of market sources, has a difficult time being the CEO of the entity that leaves of the merger.

The fundamental point is in the premium, specifically, if BBVA is willing to raise it and pay in cash, at least part of it.

There are three key points so that the operation can go ahead, convincing the current Banco Sabadell: the bonus, the payment, at least in part, in cash, the positions in the new entity that was born. Unfortunately, convincing the large shareholders of Banco Sabadell, who are the ones that can tip the balance, until achieving a majority of control.

It happens that a hostile takeover could have reputation problems, in addition to the fact that the Bank of Spain does not like them and would try to get the parties to reach an agreement. This suggests that the BdE prefers a break in negotiations rather than a forced agreement, especially when none of the banks are in danger. And the fact is that 2024 is not 2007 or 2020, in the case of Banco Sabadell, which, without being in trouble, was looking for a bit of outside air, which is why it attempted the merger with BBVA.

WHAT BANK SABADELL CAN TAKE

Part by part. One of the fundamental points is that the premium offered by BBVA may increase. The negotiation, if it takes place, is presumed to be long, two or three months, according to market sources, and Banco Sabadell can get more profit in the exchange. Banco Sabadell is trading at 0.8 times book value, market sources highlight. BBVA is out today at 9.85 euros per share and Banco Sabadell at 1.88 euros.

The negotiation, if it occurs, is presumed to be long, two or three months, according to market sources.

The price offered by BBVA is 1.02 times in books and, for example, Bankinter and Caixabank are quoted at 1.2 times in books, while BBVA does so at 1.3 times. Banco Sabadell is in a position to ask for more, according to the market. The perspective is that the entity chaired by Josep Oliu can get 2.6 euros per share in the exchange, according to Castelo. In the case of BBVA shareholders, apart from the prospect of an increase in the share, there is the EPS that they can obtain and that can be 3.5% once they pay the restructuring costs, but the dilution is there.

«The average market consensus says that the theoretical price of Banco Sabadell is 1.92 euros per share, but there are analysts who value it at 2.50 euros per share. At 1.74 euros, Banco Sabadell is quoted at a price/book value ratio of 0.8x, market sources said before the stock of the bank chaired by Josep Oliu rose.

«At the price that BBVA pays per share, the price / book value would be 1.02 times (1.02x, as it is known in the market) book value and it must be taken into account that Bankinter and CaixaBank are quoted at a ratio of 1 .2x and BBVA at a ratio of 1.3x. If I were one of Sabadell's managers and taking into account that they were going to pay in shares, not in cash, at least I would ask them for the equivalent in price to go to a ratio of 1.2x, that is, 2.6 euros per share », indicate iBroker analyst, Antonio Castelo.

THE SAVINGS

The entity led by Carlos Torres Vila estimates that the merger with Sabadell would generate savings of 850 million euros annually. In this way, the restructuring costs would be paid in two years. The bank adds that once these savings are produced, earnings per share (EPS) will increase by 3.5% (at the end of the first quarter it stood at 0.36 euros per share). Likewise, it estimates that in 2026, two years after the merger, the operation would generate a return on investment (ROIC) of 20% for BBVA shareholders. “The proposed merger generates value for all stakeholders: shareholders, employees, customers and society as a whole,” the entity assesses in its letter.

In this sense there are other visions. «The price offered implies valuing P/VCT 24e of 1x that of Sabadell, which seems attractive enough that the operation may have a greater chance of going ahead vs 2020. «We do not see a potential improvement in the offer price, taking into account Keep in mind that the exchange equation involves valuing 100% of Sabadell at just over 12,000 million euros, and in terms of multiples it implies a P/VCT 2024e of 1x, according to analyst Nuria Álvarez, from Renta 4.

“If the operation goes ahead, BBVA would have to issue 20% more shares than the current ones in circulation solely for Sabadell shareholders to subscribe, and therefore it would represent a significant dilution for BBVA shareholders,” says Álvarez.

IF THE OPERATION GOES AHEAD, BBVA WOULD HAVE TO ISSUE 20% MORE SHARES, THEY AIM AT INCOME 4

«We see as positive the fact of making the payment through a capital increase, which reduces the negative impact in terms of capital consumption. However, considering that the operation would mean BBVA issuing close to 20% more shares, the price should continue to be penalized in the short term. Likewise, Sabadell's price should converge towards the offer price, 17% higher than Tuesday's close,” indicates the Renta 4 analyst.

«We do not see the possibility of an improvement in the offer by BBVA if Sabadell rejects the proposal. Likewise, if BBVA was willing to pay part of the operation in cash, it could be a move that paves the way to closing the merger,” says Nuria Álvarez.

“WE DO NOT SEE THE POSSIBILITY OF THERE BEING AN IMPROVEMENT OF THE OFFER BY BBVA IF SABADELL REJECTS THE PROPOSAL,” THEY NOTE IN RENTA 4.

«On the motives of Banco Sabadell shareholders who can see the operation well, I have no comments. There it will depend on each shareholder, the moment in which they entered Sabadell and the price they paid. So there will be detractors and no. points out the Renta 4 analyst.

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For his part, from of its main markets, which would serve to bring CaixaBank closer to being the leading entity by volume of assets. “It will also expand its business in the United Kingdom with TSB and the synergies of this operation, which will allow it to be more solvent and profitable in the future.”

THE THREATS FOR BANCO SABADELL AND BBVA

Regarding the “threats” for BBVA, he estimates that “the operation will be carried out through a capital increase, which represents a dilutive effect for the shareholder. More shares in circulation reduce shareholder value. «Just as synergies are expected in the medium term, in the short term restructuring costs must be assumed, which affects profitability in the short term. Regarding the premium, there are shareholders who may consider that Banco Sabadell's valuation is too much.

THERE ARE BBVA SHAREHOLDERS WHO MAY CONSIDER THAT THE VALUATION OF BANCO SABADELL IS TOO HIGH

Regarding Banco Sabadell, Robles estimates as an advantage the 30% premium over last Monday's price, the integration into one of the main European banks.” As the main threats, Robles sees “regulatory approval, problems with integration and that if the operation does not go through, it could suffer a sharp drop” in the stock market.

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