Bank of America considers the merger of BBVA and Sabadell profitable

The banking news of the year was BBVA’s offer to take over 100% of Banco Sabadell. Investors, firms and the market as a whole give their assessments of this process. The latest to do so was Bank of America. The American bank believes that the merger of BBVA and Sabadell will be “profitable” for both subjects. Moreover, in a report on banks in Southern Europe, he points out that a bank of Basque origin “opportunity to further improve the current offering.”

Let us remind you that the board of directors of Banco Sabadell rejected BBVA’s proposal, considering that it underestimates the enterprise’s project. The bank, chaired by Carlos Torres, offered to exchange one of the new company’s shares for 4.83 Sabadell shares, representing a premium of 30% based on closing prices on April 29, the day before BBVA announced the offer. At that time, he also offered Sabadell members three positions on the new bank’s board of directors. However, this clause does not appear in the takeover offer, which was submitted to the National Securities Market Commission on May 24.

Bank of America views the proposal favorably and believes the transaction could represent a revaluation of BBVA, both strategically and financially. “with a return on investment of about 20%”. However, the company explains that the launch of the offering has weighed on the share price, so it points out that the “lengthy process” of acquiring and merging approvals will cause the evolution of the stock market to move forward. in rank and giving it upside potential of almost 20%. to a target price of 11.7 euros, compared to the price of 9.97 at which it closed this Thursday.

BBVA is again focusing on its domestic business in Spain, despite Mexico accounting for a significant 60% of the company’s profits, according to analysts at the US company. “It has been a key source of growth and is about to normalize with the first signs of economic normalization in the country,” they note in the report. In addition, they emphasize that Turkey continues to be a “source of instability” for the bank, which is why they insist that Sabadell will benefit from the proposal.

As for Banco Sabadell, Bank of America improved its target price from 1.8 euros in the previous report to 2.1 euros, representing a potential of 8.25% relative to Thursday’s closing price of 1.94 euros. The American firm emphasizes that the BBVA offer has caused a strong revaluation of Sabadell shares: this month the company earned 1,000 million euros on the stock market and now trades at a price/earnings ratio of 7 times PER.

Hostile takeover process

This operation consists of two parts: on the one hand, a hostile takeover bid directed against Sabadell shareholders; on the other hand, the merger of both companies to create the second largest bank in Spain. To submit a takeover bid, BBVA needs the approval of the European Central Bank (ECB), which monitors the solvency of the resulting enterprise and that the operation does not affect the stability of the financial system, as well as the CNMV, which will analyze that the Information contained in the brochure complies with the law.

Likewise, the effectiveness of the takeover bid depends on the presence of at least 50.01% of Sabadell shareholders, the approval of the BBVA board of the capital increase to carry out the share exchange, the approval of the CNMC and the Prudential Regulation Authority (PRA). United Kingdom.

This implies that BBVA does not need the prior approval of the CNMC to submit a takeover bid, but rather to achieve its effectiveness.which opens up a scenario in which a bank may enter into an operation in a market without knowing whether competition is setting the terms and what they will be.

However, the three authorizations operate in parallel: BBVA has already submitted a takeover bid by submitting an application and prospectus to the CNMV, which will be followed by the submission of documentation to the ECB and the competition authority. The first “approval” will be from the ECB., which the CNMV will use to allow BBVA to open a takeover acceptance period that could last from 15 to 70 days. The law governing these operations provides for the possibility of expanding the operation if it “becomes necessary.”

Market sources indicate that the ECB could give its approval in about four months and that it will not raise objections as it needs large and solvent institutions. However, CNMC’s work may take longer, and the same sources do not rule out the possibility of reaching a second phase that will prolong the entire process.