Legal remedies and the “white knight”: an alternative to Banco Sabadell’s takeover bid

This is the BBVA takeover bid for Sabadell, which turned from friendly to hostile in less than a month. And while he is looking for a “white knight” to confront BBVA and offer a friendly takeover bid, Sabadell could also use legal means to slow down or torpedo the ongoing operation. In fact, this latter option has already been initiated following the announcement last Thursday by the National Securities Market Commission (CNMV) that BBVA had provided information to analysts and investors to explain the terms of its takeover offer “with incomplete data that could affect the market” . “.

Spanish listed companies have very little leeway when faced with unsolicited takeover bids, according to financial and legal experts consulted by ABC. The so-called “duty of passivity” imposed on directors is included in the Royal Decree of 1991, a very strict regulation that has, however, been relaxed by the European Directive 2004725/EC, which, transposed into Spanish law, enables administrative authorities to take measures to protect against takeovers with the approval of the shareholders meeting.

With the transposition of the European Directive Law 6/2007 on the reform Securities Market Law introduced into our system two exceptions to the general rule of administrator passivity: the opportunity (even the obligation) to look for competing proposals and the opportunity to propose protective measures to the general meeting.

What does the law provide?

Thus, the rules clearly provide that the board of directors is looking for a so-called “white knight.” Investor improving hostile offer. According to financial sources, the “friendly” candidate has no chance of being Spanish, given the size of Sabadell.

This possible candidate must be a foreigner, since in Spain the only possible candidates would be the other two major players in the sector, Banco Santander and Caixabank; but the former is not interested in the Catalan bank, as it continues to “digest” Banco Popular, which it absorbed in June 2017; and the second one is in a similar situation after the purchase of Bankia in September 2020, in addition to having the same problem due to possible excess concentration in Catalonia as in the case of BBVA.

At the international level, it is true that the ECB itself recognizes that transnational transactions are necessary but still complex, given the differences that still exist between the different European financial systems. Moreover, there is practically no synergy. “When you buy a local bank, the cost synergies are much more obvious than if you had operations abroad,” explains analyst Jose Ramon Iturriaga.

hostile takeover

BBVA submitted a merger proposal to the board of directors of Banco Sabadell 10 days ago. Last Monday, the Catalan company slammed the door, and two days later the Basque company filed for a hostile takeover under the same economic conditions.

Tension

The situation between the enterprises is not the best in history associated with a hostile takeover. In fact, Sabadell “informed” BBVA CNMV about the information provided to the market.

Passivity

The provisions establish the duty of the board of directors accepting a takeover bid to remain passive and not take any action against the takeover bid. Yes, this can be protected by using two exceptions, such as asking for permission at a shareholders meeting and finding an investor to make a counter takeover offer. But, as a rule, such passivity is required from the council.

In addition, analysts, although they see that some French, German or Italian bank may try to make an offer for Sabadell, explain that it is too early to talk about mergers or cross-border operations, since the banking union project has not yet been implemented. was implemented.

Equally, there is a possibility that this “white knight” will not land to buy an entire bank like Sabadell, but rather take positions in a stake to help fight back against BBVA. And among the options, on the other hand, the Catalan bank must always believe that the takeover bid will fail on its own due to the refusal of the shareholders.

council opinion

However, the rules stipulate that at some point the board of directors will formally and publicly make a decision on the takeover bid. The law provides that within 10 days of the approval of the takeover bid by the CNMV, the board of directors will make a decision on the takeover bid and will or will not advise shareholders to participate in the bid at the expected prices, always on the basis of a report prepared by the CNMV. independent investment bank. It must also state whether the directors will participate in the takeover bid or whether the company will sell its own shares.

If all this fails, the board will always have the option of going to court if it considers that there is something abnormal in the opponent’s attack, as happened in the more recent story with Vivendi during the Mediaset merger.