Spanish bank BBVA launched a hostile 12.23 billion euro ($13.1 billion) all-share takeover bid for Sabadell on Thursday, in a surprise move that triggered immediate opposition from the government.
Taking the offer directly to Sabadell shareholders comes after Sabadell’s board rejected a bid on the same terms on Monday, a position the board reiterated on Thursday.
Hostile takeovers are rare in European banking and can end up embroiled in months of negotiations as politicians weigh in and regulators worry about potential instability.
Shares in BBVA, Spain’s second-largest bank, fell 6% on Thursday to their lowest since early March, eating into the premium that Sabadell shareholders would get for accepting BBVA shares under the deal. Sabadell shares rose more than 3%.
BBVA aims to create a lender with more than 100 million customers globally and assets exceeding 1 trillion euros – second only to BBVA’s long-time rival Santander among Spanish banks. By merging, BBVA seeks to rebalance its business towards Spain and reduce its reliance on Mexico, its main market.
“We are presenting to Banco Sabadell’s shareholders an extraordinarily attractive offer to create a bank with greater scale in one of our most important markets,” said BBVA’s Executive Chairman Carlos Torres Vila.
Spanish economy minister Carlos Cuerpo said his government opposed the hostile takeover bid because it would have potentially harmful effects on Spain’s financial system and impact jobs and customers. Under Spanish law, the Economy Ministry has the power to block any merger or acquisition of a bank.
BBVA’s chairman told analysts on a call that he was confident the government would appreciate the value of the proposed deal “once the dust settles” on recent events.
He acknowledged that upcoming elections on Sunday in Catalonia – the Spanish region where Sabadell has its main operational headquarters and which would be most affected by the deal – made for “a bit of a charged environment.”
European banking deals have long proven tough to agree, despite European regulatory desires for greater consolidation. Vice-President of the European Central Bank Luis De Guindos said on Thursday that the ECB would focus on the merged entity’s solvency.
BBVA has contacted some sizeable Sabadell shareholders who responded favourably to the proposed transaction, Torres said. He later told journalists that BBVA would stick with its plan and was not concerned if the hostile move damaged its reputation.
FALLING PREMIUM
Retail investors own almost half of Sabadell’s shares. Big institutional investors include BlackRock and Dimensional Fund Advisors.
The offer needs a minimum approval of 50.01% of Sabadell shareholders. BBVA expects a deal to be completed by mid-2025.
Analysts said the deal did not, on first reading, appear to present material antitrust concerns. Spain’s competition authority declined to comment.
Though the offer had been taken to shareholders, Torres said that the spirit was “friendly” and BBVA was still open to negotiate with Sabadell’s board.
“In our view, the deal is now a question of price and that both banks negotiate and abandon the hostile route,” Alantra analysts said in a note.
“A hostile bid could be a lose-lose for both banks. Sabadell would defend itself, but the damage to the franchise remains to be seen as this could be a lengthy process,” they said.
One recent example of a rare hostile bid for a European bank was Intesa’s successful takeover of UBI Banca in 2020.
BBVA offered an exchange ratio of 1 newly issued BBVA share for every 4.83 Sabadell shares, a premium of 30% over April 29 closing prices. That premium was around 8% on Thursday, valuing Sabadell at about 11 billion euros, according to Reuters calculations.
A large shareholder in BBVA said the bank’s share performance would be critical to the bid’s success, given there was no cash component and BBVA could not afford to pay one. The slide in BBVA shares on Thursday showed investors were lukewarm about the transaction, the shareholder added.
Jerome Legras, head of research at Axiom Alternative Investments, an investor in both BBVA and Sabadell, backed the offer.
“(The deal) should be beneficial for both parties: Sabadell’s investment case weakness was excessive reliance on higher for longer interest rates, BBVA’s was excess reliance on Mexico,” he told Reuters.
SECOND ATTEMPT
It is the second attempt at a tie-up between BBVA and Sabadell. They called off merger talks in November 2020 after failing to agree on terms, including the price tag.
The latest move comes as Spanish banks have been looking for ways to increase revenue as a boost from high rates begins to fade.
The deal, which BBVA estimates could bring cost savings of 850 million euros before taxes, would give Sabadell shareholders a 16% stake in the combined lender.
The combined entity would overtake Caixabank as Spain’s biggest domestic lender.
Spanish banking has gone through waves of consolidation, with the number of lenders down to 10 from 55 before the 2007/08 global financial crisis.
Source: Reuters.com