The cost of the BBVA-Sabadell merger is 20% of the valuation.
BBVA is determined to take over Banco Sabadell. After the Catalan enterprise rejected the offer, Banco de la Vela decided to carry out a hostile takeover, that is, make its offer directly to shareholders. This is the same offer that Sabadell refused, but BBVA considers it attractive. One issue they disagree on is the cost of the merger. BBVA estimates them at approximately 2,300 million (including restructuring and synergies), which This represents 18.7% of the Catalan’s estimate.
BBVA’s offer is to exchange 1 new share for 4.83 Sabadell shares. At closing price on April 29 (the day before the offer) This offer represents a 30% premium.. In absolute terms, the proposal would value the bank led by Josep Oliu at around 12.277 million euros. On the other hand, BBVA estimates that the cost of the restructuring will be 1.450 million euros and 850 million from synergies. A figure that would have a negative capital impact of 30 basis points.
Organization chaired by Carlos Torres It is estimated that the ratio of restructuring costs to achieved synergies is 1.8 times., but the board of Banco Sabadell does not believe that these coefficients are correct. In fact, Cesar Gonzalez-Bueno, the company’s CEO, explained that the board of directors applied the adjustment factor and concluded that it would be a multiple of three, although BBVA sources explain that the reports “were compiled with the utmost rigor.” “No one can achieve such synergies at a cost that is three times the savings achieved. That is, what we could call, simply put, a three-year “payback,” the CEO explained at the 19th financial meeting organized by IESE and FTI Consulting.
In addition, he recalled that the impact that BBVA estimates does not include breakups due to joint ventures, especially those that Sabadell has with Amundi in asset management and with Zurich in bancassurance. “I can’t say that number because it’s not public, but it’s significant and the board included it as well.”he talked about it in detail.
Therefore, taking into account these calculations, as well as the fair value adjustments to the forward portfolio and Sabadell’s own assets, the board of directors has concluded that the equity impact of the transaction will be “much higher“up to 30 basis points, which are included in the BBVA announcement.
Given these statements, BBVA sources explain that “all figures reported to BBVA, including the estimated restructuring costs of EUR 1,450 million (before tax) and the estimated impact on CET1 of -30 bps, “They were calculated with the utmost rigor, as in all operations.”. They also wanted to note that they respect Gonzalez-Bueno’s defense of the board’s decision to reject the offer, but clarify that “it is now up to Banco Sabadell shareholders to comment on the offer that BBVA made to them directly, which we consider extremely attractive.”
Regarding the negotiations, the same sources claim that “as we said at the press conference on May 9, contacts began in mid-April.” And on this occasion, González-Bueno assured at the IESE meeting that there were no negotiations, but rather that the proposal came to them on April 30 and that the council was convened on May 6, and on May 5 they received an email from Carlos Torres: President of BBVA.
“The board expressed concern about the fall in the price of the shares with which, in principle, Banco Sabadell will pay,” Gonzalez-Bueno said. In addition, the governing body of the enterprise also took into account the “social problem”, that is, the impact on employees and customers.
In this regard, the CEO of Banco Sabadell explained that he is in contact with the employees and expressed the existing “concerns”. “Obviously, when there’s an offer on the table, proposes to cut costs by 41%, people rationally think that it will affect them more than others.. Of course, this is cause for concern,” he said.