Sabadell’s Hostile Takeover of BBVA: A Chronicle of a Death Foretold?

TO Carlos TorresThe president BBVAhe finds it difficult to move forward hostile takeover that your bank launched Sabadell. Criticism of the operation has poured in from all sides since its announcement. The first came from the board of directors of a Catalan bank, which refused to accept the takeover offer because it considered it to “significantly undervalue the project.” They followed views from the government, opposition parties, regional presidents, unions and financial service user associations, which agreed to indicate that a takeover bid, if it goes ahead, would increase banking concentration in Spain, will reduce competition on the market and will generate layoffs workers.

In this scenario, given that the operation was rejected by the majority, investors of both banks are wondering whether it will continue or not. And even more so when Sabadell reported her CNMV for violation of the takeover regime and the introduction of “incomplete data”, which may affect the information available to investors. Analysts aren’t entirely sure, but most believe that A hostile takeover is difficult to carry out.

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This is the case Juan José Fernandez-FigaresDirector of Management of Collective Investment Institutions at Link Securities, for whom “It will be difficult to move forward. BBVA offer. The whole issue has become very narrow, and this tends to make it difficult to implement such uncoordinated proposals.”

Ana Rueda, a professor at Carlemany University and a partner at Lemon Economists, is of the same opinion. He states that market sentiment is: “a hostile takeover is unlikely to succeed because the price offered is considered low and difficult for the authorities to accept.”

Another advantage of Sabadell against a takeover bid is that financial situation has improved significantly in recent years. “After restructuring its English subsidiary and strengthening its balance sheet through debt reduction, accompanied by a recovery in the Spanish economy, Sabadell has achieved success. increased profitability and the price of its shares,” the expert admits.

Sergio Avila, IG analyst, does not rule out that, in his opinion, a hostile takeover may succeed or fail: “This requires approval regulators Spaniards and Europeans who could block it on competition and financial stability issues. In addition, current economic uncertainty may make it difficult to finance the transaction and affect investors’ willingness to accept the offer. The situation remains uncertain and its outcome is difficult to predict“

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Given these doubts, Manuel Pintocompany analyst control and regulatory authoritiesas we do not believe that this has negative consequences in terms of financial stability or competition within the financial sector.”

Regarding the approval of the proposal by Sabadell shareholders, Pinto is convinced that Carlos Torres “has pre-approval» from some of the most significant institutional investors in Sabadell. Moreover, this approval was already partially acknowledged by Torres in a meeting with analysts when he noted that “We have received positive feedback from some shareholders.“

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What could guarantee BBVA that Sabadell shareholders would agree to a takeover bid? improve offer what he did with them is a move that experts have ruled out for now. The current offer consists of an exchange action recently released from BBVA For each 4.83 shares from Sabadell Bankwhich represents 30% bonus at the closing prices of both companies on April 29. But at today’s prices the premium will remain at 8-9%, as BBVA’s share has fallen since the takeover bid was first announced, while Sabadell’s share price has risen.

Thus, the theoretical 2.23 euros per share at prices on April 29 is today about 2 euros per sharewhich “They seem very low to us. According to our calculations, grade Sabadell’s theory of action would be 2.50 euro“, calculates Antonio Castelo, Analyst at iBroker Global Markets. Therefore, he believes that the increase in supply could encourage Sabadell investors to participate in the takeover bid.

“I understand that Sabadell shareholders, if offered a discount of, say, 10% on this theoretical price – €2.50 per share – will consider accepting the offer, but as long as they receive monetary reward not in actions,” says Castelo.

Sergio Avila also believes that improving the offer could improve the chances of a hostile takeover being successful: “It could attract shareholders, convince the board of directors to reconsider its initial refusal and demonstrate BBVA’s commitment to regulators.” However, he believes that the Basque bank “will need to provide financing in an unstable economy.” It therefore emphasizes that while an improved offering increases the likelihood of success, economic, regulatory and strategic factors “will continue to be determinants of the final outcome.”

According to Avila, this improvement could consist of increase significant in price per share and combination payment in cash and sharesin addition to clear going concern obligations, protection of employees and clients and a transparent integration strategy. In short, “ensuring that the transaction will benefit both parties, since an improved offer combining these elements could persuade both large shareholders and retailers to accept the takeover offer,” he points out.

However, improving supply is not currently on BBVA’s action plan, as its president stated, noting that “there is no way to raise the offer for Sabadell“

And they are becoming less and less if we take into account that BBVA capitalization Ha decreased V 6 billion euros since the takeover was announced, so “significant improvement in supply hardly in the short term,” Avila said.

Manuel Pinto rules out this possibility: “For BBVA, this operation would be much easier if it reached an amicable agreement with the management of Sabadell and took advantage of previous negotiations to improve it, if possible. However, Carlos Torres’ ultimatum has already been outlined difficulty suggesting improvements“

The only alternative Pinto sees for BBVA to raise the offer is “sell British bank TSB Banksubsidiary of Banco Sabadell, which will allow BBVA to include part of the cash offer.”