BBVA’s takeover proposal for Sabadell in the next stages

The hostile takeover launched by BBVA against Sabadell shareholders accelerated after the board rejected a friendly offer on May 1. The proposal came after British network Sky News exposed the transaction, prompting the bank to inform CNMV of its intentions. “If this leak had not happened, we would now be negotiating privately,” the organization’s president, Carlos Torres, said this week. The manager said contacts with Sabadell and its president, Josep Oliu, had been ongoing since mid-April. In fact, I had an appointment with him on the 30th, which coincided with the leak.

Because after the refusal of the Sabadell management, BBVA skips this step and addresses its proposal directly to shareholders, which is a very unusual format in the sector, having only one precedent almost 40 years ago, when Banco Bilbao tried to merge with Banesto in 1987. Once a prospectus is published, investors must decide whether to sell their securities to the entity. In fact, the merger will depend on at least 50.01% of them accepting the offer.

Banco Sabadell’s largest shareholder is BlackRock with 3.62% of the capital, followed by Mexican investor David Martinez (3.4%), as well as Dimensional Funds and Fintech Europe with just over 3%. The fact is that among institutional companies, BlackRock is also the main shareholder of BBVA with 5.91% of its capital. And both companies have more managers and funds in their shareholder structure, with the weightings varying from one to the other. The challenger also hopes to convince more than 200,000 retailers, who make up 48% of Sabadell’s structure. But this will not be easy because in these processes people usually follow the recommendations of the board, which, if nothing changes, will be negative.

BBVA is offering the same price as in its previous offer: one new share for every 4.83 Sabadell shares, at a 30 percent premium compared to April 29, when the transaction became public. Since it is an exchange, the premium depends on what both companies do in the stock market. So the current equation – after BBVA’s decline in the stock market these days and Sabadell’s rise – implies a premium of 7.5%.

BBVA says it will not improve its current offering, and analysts also consider it challenging due to the impact on capital. Although the company has a surplus of about 3.1 billion euros, firms such as Citi have estimated that each 10% improvement in supply will result in a deduction of between 25 and 30 basis points. We also have to take into account the impact of approximately $1,450 million in restructuring costs.

Takeover law is very strict in determining the extent of discretion that Sabadell will have throughout the process. This rule (which regulates the so-called “right of passivity”) does not allow a Catalan enterprise to issue shares en masse (to raise the price), or sell part of its business if this would affect the BBVA offer. Yes, you can increase your dividend or change your strategic plan. You can even test the market for a third bank that will intervene in a surprising way.

Yes, this is what is called a “white knight” in stock market jargon. That is, the bank may interfere with the takeover bid because Sabadell tried to counter it by submitting another acquisition offer that is better than BBVA’s offer (with a higher price or part of the payment in cash rather than just shares, for example). ). example). That is, the Catalan enterprise could try to select a buyer who, for strategic or economic reasons, is considered better than BBVA. Until now, the banking market has been calm, but a hostile takeover could open a Pandora’s box in this sense.

There are three organizations that will evaluate this process: the National Securities Market Commission (CNMV), the European Central Bank (ECB) and the National Markets and Competition Commission (CNMC). The CNMV, the first institution overseeing this process, is responsible for ensuring that all legal, technical and exchange procedures are carried out without violating the takeover rules, which are strictly regulated to avoid conflicts of interest between participating banks. For its part, the ECB is also obliged to make a decision on this operation, since it is the highest banking authority in the eurozone.

The organization headed by Christine Lagarde has always pointed out the need for bank mergers, even those that practically do not occur between European organizations. And competition will evaluate and perhaps impose restrictions on the products sold, the fees paid by customers, or the information responsibilities for users, as has been done in other mergers, without vetoing them.

The Ministry of Economy will be the last link in the entire chain of the final operation. It is this department that must approve the integration phase, as required by the Banking Regulation Act 2014.

It will do so in light of previous reports prepared by regulators, but its decision will be independent of those opinions. The executive has already announced that it will present a “more cross-cutting” vision and that it will include elements such as employment, financial inclusion or territorial cohesion in its approval or veto.

At the moment they will not be caused by a hostile operation. BBVA and Sabadell customers will continue to operate as normal during this time, and only if the merger goes through will they see changes from then on. Staff will also see no change in the short term, despite the predictable “non-traumatic” adjustments that will be applied if the takeover goes through, which would create a company with 41,000 employees in Spain (27,410 from BBVA and 13,455 from Sabadell) from 3,000 offices across the country (1882 and 1194 in each case).