BBVA’s takeover bid for Sabadell passes through: new keys for shareholder | Financial markets

BBVA’s takeover bid for Banco Sabadell is neither good nor bad, but quite the opposite… Since May, both banks have been locked in a ruthless battle in which the arguments are irreconcilable. BBVA CEO Onur Genç this week defended the benefits of a “book operation,” to which Sabadell CEO responded that “it doesn’t make sense.” The position has not budged since BBVA presented its hostile bid on May 9, with Sabadell asserting its ability to create shareholder-only value in the face of an offer it deems insufficient, and BBVA insisting on presenting it as an opportunity only for shareholders. shareholders of the Catalan bank, without providing any opportunities to improve the situation. Meanwhile, the government continues to reject the operation, which it says will harm competition in an already highly concentrated market.

The terms of the operation remain on the table, but Sabadell shareholders who will have to make a decision on the offer face numerous questions as the operation continues longer than expected: What decision will CNMC make about the impact on competition? Will it impose such stringent conditions on BBVA that it will interfere with the operation? When will CNMV give a green light to an offset to the absorption? Can shareholders make a decision on the proposal without knowing CNMC conclusions? What happens to the payment of dividends? How do they affect the equation of metabolism? And what risk is there to this exchange if supply is unduly delayed and market sentiment changes?

Dividends

It has been five months since BBVA announced its hostile takeover bid for Sabadell, and large dividends paid by both companies have forced an adjustment to the proposed swap equation. Everything was as expected: when the dividend payment from Sabadell occurs, it will be adjusted in the exchange equation, and the dividend received from BBVA will be paid in cash to the shareholders of the Catalan bank after the closing of the offer. That’s what happened after BBVA paid its highest ever dividend this week, €0.29 per share, and Sabadell responded by tripling its dividend to €0.08 per share, also paid this month. What is the highest amount since then. 2010.

Thus, BBVA is now offering to exchange one BBVA share for every 5.01 Sabadell shares, to which will be added 0.29 euros in cash dividends paid by the bank after the exchange. There will be a small part of the cash payment, that same 0.29 euros per share. But the offer does not change, there are no improvements, and the premium has remained virtually unchanged compared to the conditions before the dividend adjustment. What BBVA is offering implies a premium of 3.2% for Sabadell shareholders at current prices, a far cry from the 30% it represented in the closing prices of the two companies on April 29, before they fulfilled the bank’s intentions under the chairmanship . Carlos Torres.

In any case, the adjustment for dividends contains a small nuance that should be taken into account if the operation extends over a long period. Jefferies said the cash payout BBVA will make, while limited, may be well received by Sabadell shareholders as the cash portion “represents some protection against potential volatility in BBVA’s share price.”“ Pending CNMC approval, which could be delayed until 2025 if the body decides to conduct a more in-depth review of the operation, the cash portion of the offering will increase as BBVA pays dividends. There is also a risk that the exchange equation will worsen and the premium will disappear if BBVA fails in the stock market.

Prize and what is waiting for the market

Besides the huge political noise surrounding this operation, the market is already giving its verdict on this proposal. The premium was reduced to just over 3%, which could be a sign that it is insufficient and does not provide a sufficient incentive for Sabadell shareholders to sell – as the Catalan bank defends – or that, on the contrary, the convergence of actions towards the proposed price is a signal to the market that that the operation will continue. “I believe the takeover bid will be accepted, the reduction in premium indicates the market is giving it a high probability and Sabadell would not be trading at this level if not for the takeover bid. I would give only a 10% chance that the conditions set by CNMC will be so tough that BBVA will give up,” says a Spanish fund manager.

BBVA recorded a fall of just 0.5% on October 8, its first day of trading, excluding the payment of the largest dividend in its history, which the head of the fund manager said “is a good sign for the company and for the takeover.” “For a BBVA shareholder, this is a good transaction, Sabadell is a good addition. And many Sabadell shareholders are willing to take part in this proposal,” he adds. Although, as with any large corporate operation, shareholders are not going to give up hope for improvement The situations from BBVA at the last minute.

CNMC and risks for BBVA

The key moment for the takeover bid will be the decision of the National Markets and Competition Commission (CNMV), which is expected in the near future. And given what happened with the merger of CaixaBank and Bankia (the last major concentration move in Spanish banking approved without major setbacks), it is expected that this time the CNMC will decide to move on to the analysis of the operation to the second stage, which implies that the results of the operation As expected, they will be postponed at least until the spring of 2025. This more detailed phase 2 analysis includes hearing from financial service user associations, competing organizations or the affected autonomous communities themselves. And the longer a decision on the takeover bid is delayed, the more risks there are to BBVA’s trade equation.

Much of the market has already discounted the analysis moving into phase two, but this decision could predictably hurt BBVA’s price. This additional analysis by the CNMC will mean that BBVA will keep the offer open in the channel longer, take on more demands – asset sales or restrictions on its activities – and the fact that these terms will also need to be approved by the Council of Ministers. which can also establish additional conditions.

BBVA, which will report third-quarter results on Oct. 31, also faces the risk that the U.S. election results on Nov. 5 could pose to its Mexico business, the group’s true mainstay and profit center. Especially because of the possibility of the Mexican peso depreciating in response to Trump’s victory, as already happened in 2016, when the currency experienced a historic decline against the dollar. “There is a risk premium for Mexico and it makes sense that it would want to reduce its emerging market weighting with the Sabadell acquisition,” financial sources said. “It is good that European banks are consolidated, but BBVA is not. “This is an emerging market bank,” Sabadell CEO Cesar Gonzalez-Bueno criticized this week.

In the coming months, BBVA will also face a serious reputational risk, which the market is currently unaware of. The judge in the Villarejo case proposed that BBVA be tried as a legal entity under the orders of the retired commissioner. The bank appealed this decision, but it opens the door for the organization headed by Carlos Torres to sit in the dock. This unusual situation could arise in the process of Sabadel’s proposal. Regarding this possibility, the CNMV President himself recently noted that “we do not make a value judgment as to whether the person making the offer is an ideal offeror. We only ask that if it is a listed entity, the risks are known to the investor or the market.” Both BBVA investors and Sabadell.

Calendar and role CNMV

When BBVA submitted its takeover bid in May, the operation could have closed within six months, but that timetable remained a dead letter. Assuming CNMC moves into the second phase of the transaction and announces final conclusions by next spring, “the market expects the share swap to take place in June 2025,” financial sources said. BBVA needs the approval of the CNMC as well as the CNMV, not forgetting that the government insists that it has the option to annul the merger with Sabadell because it harms competition in the financial sector and affects “territorial cohesion.” “Structuring the territory.” BBVA led to the operation to achieve the minimum adoption of 50.01% of Sabadell capital. Thus, he could control the Catalan bank, but would be unable to complete the merger due to government refusal, which would ruin his synergy plan. BBVA has already received approval for its takeover bid from the ECB, which is analyzing the implications for financial stability but not for competition.

For calendar purposes, the key moment will be when the CNMV gives its approval for the operation. You can do this before or after the final conditions that the CNMC may impose are known. It is therefore possible that the CNMV will approve the offer, thereby starting the acceptance period before Sabadell shareholders know what terms are required of BBVA in its takeover bid for the bank. And in the worst case, BBVA could give up as soon as the takeover bid begins, given that it is conditional (as it has said since May 9) on competitive conditions.

In fact, CNMV has the legal capacity to approve the takeover bid and give the starting signal before the CNMC report is known, which is expected to happen in phase 2. In such a case, Sabadell shareholders will be forced to make a decision without having all the elements. . Spain’s market regulator has not said when it will approve the proposal, which is expected to proceed without problems. Once this happens, there will be a period of 15 to 70 days (to be set by BBVA) during which Sabadell shareholders can decide whether or not to attend the takeover bid.

So far, CNMV President Rodrigo Buenaventura has limited himself to pointing out that the takeover bid for BBVA “has great complexity” because it involves an exchange of shares. And it acknowledged that CNMV must balance the right of Sabadell shareholders to decide on the takeover bid with the possibility that if the conditions imposed by CNMC on competition issues “are very onerous, shareholders’ views may be very different.” . In short, there are still many unknown to make a decision ahead.