Sabadell rejects BBVA’s merger proposal and prefers to go it alone

Board of Directors Sabadell This Monday he categorically rejected the offer merger by acquisition “undesirable, indicative and conditional”, which BBVA because he understands it “significantly underestimates” your project and prospects for its growth. After almost a week, despite haste from a competitor, the highest governing body of education of Catalan origin chose the strongest option: nor accept proposal (it understands that it can only create more value for its shareholders) and not ready to negotiate to improve it. It is currently unknown whether BBVA will launch hostile takeover on the already proposed conditions (something with few precedents in the banking sector and even fewer successful cases), he will unilaterally upgrade it to try to convince Sabadell, or he will give up. The bank gave no clues. “We regret which the board of Banco Sabadell rejected such an attractive offer“, sources from the group limited themselves to indicating.

As stated by Activos, which like this newspaper belongs to the Prensa Ibérica group, Sabadell was inclined to plant for face in BBVA. “The Council has full confidence growth strategy Banco Sabadell and its financial objectives, and believes that Banco Sabadell’s strategy as an independent entity will lead to greater value for its shareholders. Likewise, significant drop and price volatility action of BBVA In recent days it has given rise to additional uncertainty about the cost of the proposal,” the company said in a compelling statement. To reassure its own shareholders, it also confirmed its commitment to regularly distribute excess capital to them above 13%, which it estimates will amount to some 2.4 billion euros this year and next, adding dividends.

He BBVA

last Tuesday, due to a leak, Sabadell was forced to submit a merger proposal and almost simultaneously announce it publicly. Less than 24 hours later, even though he was under no obligation to do so, he revealed the details. Thus, the second Spanish bank offered the fourth bank in the country share exchange What does it mean to value Sabadell at this price? 30% more above its share price last Monday and give its shareholders 16% new business as a result (despite providing 22.7% of assets). He also opened up to give him vice presidency director of his competitor (intended, as expected, for his president, Josep Oliu), among other details.

Actions of the group chaired Carlos Torres Vila were perceived as aggressive Sabadell management who understands what BBVA wanted pressure on its shareholders disclosure of proposal details. His council met last Tuesday to take note of his rival’s proposal, but gave himself time to make a statement until probe to their leaders owners and count on advisor reports who hired last week: Goldman Sachs and Morgan Stanley (financial) and Uriah and Menendez (legal).

Rebalance of power

From the moment of announcement of the offer of shares Sabadell they have up to 8.8%up to 1.89 euros (which implies the market value 10.282 million), while those from BBVA they have fell by 9.7%up to 9.84 euros (57.445 million). This proves that the market’s first assessment is that the operation will initially more favorable for Sabadell shareholders, although with doubts about whether it will continue (these titles are far from the proposed 30% premium). On the contrary, the fall in BBVA indicates that investors they don’t see clearly short-term advantage for their owners (who would have seen how reduces excess capital bank from which they receive remuneration and they will face the usual execution risks that this type of operation threatens to make it difficult to achieve the expected benefits).

BBVA’s proposal implies a valuation of Sabadell shares at 2.2581 euroThe €1.737 price at which it was listed last Monday and the analyst consensus price target of around €1.85, according to S&P Global. The Basque group rated the Catalan language at approximately 12,284 million euroscompared to share price 9.623 million which I had before the offer was announced. We’ll have to see if BBVA will be there ready to improve his proposal or launch a hostile takeover. As you stated, the surgery will already cost you much more

what when in 2020 Previous negotiations were disrupted, according to some sources, by an amount close to 200 million.

Sabadell was going through hard times back then: it was worth it. 1.7 billion on the stock market before the contacts were announced and sought to be valued slightly lower 2.5 billion, which BBVA did not accept. Since then, Sabadell’s market value has risen. shot thanks to model change control (Oliu ceased to be a leader, and CEO Jaume Guardiola was replaced by Cesar Gonzalez Bueno) restructuring business and tailwind rate hike of interest. Until last Monday its price was up to 452% and its competitor also improved, but less (and 200%to 63.633 million), which also makes the operation more expensive, especially with the subsequent evolution of the ownership rights of both entities.

Convince the shareholder

BBVA, in fact, an effort last week for convince your shareholders that the takeover of Sabadell would benefit them. Thus, he assured that earnings per share will increase from the first year after the merger until an improvement of 3.5% is achieved, when the expected synergies are achieved. He expected to achieve price drop some operations 850 million per year (achieved through office closure And reduction in the network and central services). To do this you will have to invest 1.45 billion and its capital will be reduced by 0.3 percentage points. The proposed price is very close to the book value of Sabadell (2.27 euros per share, totaling $12,349 million), so negative business reputation To finance these cuts it would be very small.

BBVA also calculated that tangible book value per share will increase by approximately 1% on the day of the merger and that the operation will have return on investment about 20% in 2026. However, these figures do not take into account expenses break any agreement bank insurance of the two banks, presumably the one that Sabadell has been cooperating with Zurich since 2008. He also assured that the new bank will have “ambitions” to become the largest in the eurozone by market value and will provide “high reward” to its shareholders, “despite the macroeconomic context with prospects rate reduction interest rates and a predictable slowdown in credit investment growth in Europe.”

One trillion assets

If the operation had finally taken place, what would have been delayed for several months, the sum of the banks would have resulted in the formation of an organization with total assets of just over a trillion euros (before adjustments typical for this type of operation) and about 626 billion assets

in Spain. Thus, the new bank can narrowly outperform KaishaBank (total assets 613,457 million) as a leading company in the Spanish market, in addition to Santander (468.807 million national compared to 452.227 million BBVA). It would also reduce Santander’s position as the first Spanish bank (its total assets are $1.8 billion compared to BBVA’s $801,690 million) and could compete for third place in Europe by stock market value behind the French bank. BNP Paribas and Santander itself.

Acquisition of Sabadell will allow BBVA to grow into a profitable business small and medium companiesand also balance your weight different geographies having received a quota in Spain and entered Great Britain (Mexico accounted for 56.5% of the group’s total profits through March, compared with 28.4% in Spain). Basque bank launched winks at the government: This will be a “larger tax contribution” and the new bank will be able to lend €5 billion more per year. However, the Minister of Economy Carlos Bodiehas already made it clear that it is concerned about the continued “competitive situation in the financial sector” if the operation goes ahead.