Guide for investors and clients of BBVA and Sabadell

A new step forward: BBVA’s submission of a hostile takeover proposal for Sabadell to the CNMV. But nearly a million shareholders and customers of both companies still face months of waiting.

What premium does the equation currently offer?

BBVA is offering shareholders one BBVA title for every 4.83 Sabadell shares. This exchange represented a premium of 30% over prices on April 29, when news of BBVA’s interest in Sabadell first became known, and 50% over the average price over the previous three months. This meant a valuation of Sabadell at 2.26 euros per share, or about 12.2 billion euros. But because this is a share offering, the price a shareholder achieves varies depending on prices, and the fall in BBVA since April 29 last year (8.59%) and the rise in Sabadell (9.90%, to €1.91) have limited the premium. up to 8% at Friday’s close.

Is this interesting for Sabadell shareholders?

The board of directors of Banco Sabadell insists that the offer of 2.26 euros per share “significantly undervalues” the Sabadell project. Many analysts advise holding or selling shares as they approach their target price (which ranges from €1.70 for more pessimistic firms such as Barclays to €2.50 for JB Capital).

However, experts acknowledge that the merger will allow Sabadell shareholders to enter a larger and diversified group with more liquid shares. The union will create the second largest Spanish bank by assets after Santander. According to BBVA, this will allow them to increase earnings per share (EPS) by 3.5% and return on investment by 20%.

If the acquisition goes through, Banco Sabadell will become part of a larger and diversified banking group, and its rating will benefit from BBVA’s support even without full integration, DBRS explains. It also highlights the risk that Banco Sabadell will have little ability to make strategic decisions until this process is completed. The company acknowledged in a document to CNMV this week that it could lose business and face executive exodus as a result of the takeover bid.

What does this mean for BBVA shareholders?

The merger makes strategic sense for the bank, led by Carlos Torres, as it allows it to reduce the weight of emerging markets (Mexico and Turkey) in its business, thanks to the high weight of Sabadell in Spain and TSB’s business in the United Kingdom. . But analysts say the execution risk taken by BBVA is high because it is a hostile transaction and will lead to price uncertainty. There are doubts as to whether the restructuring costs and operational synergies will be in line with BBVA’s objectives. Experts believe that in a few weeks the bank’s price will again be carried away by the results and will weaken after the summer or at the end of the year, when the end of the offer period approaches. The refusal of the Ministry of Economy from the operation raises doubts and puts downward pressure on BBVA.

How long does absorption usually last?

It is estimated that the total duration could be between six and eight months, including administrative clearances. The average period for acceptance of a public offer is 60 days from the date of approval of the CNMV transaction prospectus, but in this case it is expected to be longer.

If the takeover bid is successful, when will the merger take effect?

BBVA has published a preliminary timetable that assumes a period of 12 to 18 months from the end of the takeover bid for BBVA and Sabadell to allow them to operate as a single bank for all purposes.

What employment and industry adjustments might their integration entail?

BBVA does not provide figures. Its president only remembers that all BBVA employment adjustments are not traumatic and are agreed with the unions. Some union estimates suggest cutting a third of Sabadell’s workforce and closing 800 branches (along with BBVA branches).

Will the Sabadell brand survive?

The intention is to support the brand in those territories where Sabadell has a relevant commercial position. That is, most likely in Catalonia and Alicante.