(Bloomberg) – Banco Bilbao Vizcaya Argentaria has made an 11.5 billion euro ($12.4 billion) bid for Banque Sabadell directly to shareholders, but the Spanish government is concerned about job cuts and a decline in competitiveness. It was an unusually hostile move, with the government announcing its opposition.
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According to BBVA’s filing on Thursday, Spain’s second-largest bank outlined in a letter to Sabadell’s board on April 30 an all-share offer with similar terms to the previously rejected offer. Is going.
The first hostile move in Spanish banking since the late 1980s highlights how relations between the two banks have deteriorated since news of a possible deal surfaced last week. The bid was immediately criticized by the Spanish government, which said the deal could increase the risk of destabilizing Spain’s financial system.
Economy Minister Carlos Cuerpo said in an interview with state television TVE that the government would have the final say on any deal. He said the agreement could have a negative impact on competition and create uncertainty and instability in the country’s financial sector.
Read more: Spain says it has final say in approving BBVA offer for Sabadell
The comments were made ahead of Catalonia’s regional elections on May 12, in which Prime Minister Pedro Sánchez’s Socialist Party is the front-runner. Sabadell is a Catalan bank, and politicians in the region have expressed concerns about its acquisition. The two banks employed approximately 140,000 people worldwide as of the end of March.
Even before the Spanish government intervened, analysts had said the proposal was unlikely to succeed. “At these prices, this offer is not attractive” and should be rejected, said Nuria Alvarez, an analyst at RentA4.
In Madrid, BBVA shares fell 6%, while Sabadell shares rose 3%. The proposal proposes an exchange ratio of 1 newly issued BBVA share for every 4.83 Sabadell shares, valuing the smaller lender at a premium of about 18% compared to Wednesday’s closing price.
Sabadell’s board abruptly rejected its previous approach earlier this week, saying the bid “significantly underestimates Banco Sabadell’s potential and its standalone growth prospects.”
On Wednesday, Sabadell released a letter dated May 5 from BBVA Chairman Carlos Torres to Sabadell Chairman Josep Oriu, in which Mr. Torres stated that BBVA could not improve its offer.
Torres said in the letter that the decline in BBVA stock after the first bid was made public “makes it absolutely impossible for us to pay any more.”
The merger will create a new major Spanish bank with a joint balance sheet of more than €1 trillion in assets. BBVA and Sabadell have a combined market capitalization of around 70 billion euros, roughly equivalent to the valuation of Banco Santander, Spain’s largest lender.
BBVA said the combined lender would have a loan market share of 22% in Spain and pledged to maintain its current shareholder distribution policy and distribute surplus capital in excess of 12%.
BBVA’s statement also estimated that the transaction would be:
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Increase earnings per share by 3.5%.
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Generates a return on invested capital of approximately 20%.
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It will slightly reduce CET1, a key measure of capital strength, by about 30 basis points.
The latest offer is subject to acceptance by 50.1% of Sabadell shareholders. It is also subject to various antitrust and regulatory approvals.
This is the second time BBVA has attempted to acquire Sabadell, with both lenders briefly negotiating a deal in late 2020 that fell apart over price.
Europe’s banking leaders have long emphasized the need for transformative deals to stand out in a fragmented market crowded with thousands of small regional institutions. The lack of common deposit protection and burdensome regulations across the European Union hinders such cross-border efforts.
Bloomberg intelligence statement
BBVA’s new takeover offer for Sabadell is likely to be its last attempt, even if it fails, as it does not improve on the proposal already sent to its prey’s board and rejected. The final consideration will depend on changes in the stock prices of both BBVA and Sabadell.
Lento Tang, BI Analyst
–With assistance from Dale Crofts.
(Updates with government comment in lead and fourth paragraph.)
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