BBVA launches hostile bid for Sabadell

Spanish lender BBVA has drawn a rebuke from the country’s government after launching a hostile bid for domestic rival Banco Sabadell that has rocked corporate Spain.

BBVA took its all-share offer directly to Sabadell’s shareholders on Thursday after the target’s board earlier this week dismissed the bid, saying it “significantly undervalued” the bank and its prospects.

The move sets up a multibillion-euro battle in a country where there have been just a handful of hostile bids over the past quarter-century. The initial offer, made last week, valued Sabadell at €12bn, but that price has since fallen as BBVA shares have declined.

Carlos Cuerpo, Spain’s economy minister, hit out at the proposed deal, warning it would have “potentially damaging effects” on the Spanish financial system.

He also said that the government “has the final say in authorising” the transaction. While BBVA could purchase Sabadell without government approval, it would be unable to merge the two entities unless ministers allowed it.

Appealing directly to shareholders marks an escalation in what was already a fractious stand-off between the banks. It also comes ahead of regional elections on Sunday in Catalonia, where Sabadell was founded.

BBVA chair Carlos Torres brushed off the public criticism from the Spanish authorities. “I am very confident that the government will appreciate the value of the transaction over time,” he said. “We have [Catalan] elections coming up on Sunday, and it’s a politically charged environment.”

Although BBVA has most of its assets in Spain, nearly half of its income last year came from Mexico — where it operates the country’s largest lender, Bancomer — with another 10 per cent made by its Turkish business.

Swallowing Sabadell would boost BBVA’s presence in Spain, which accounted for just a quarter of its profits last year. BBVA argues that Sabadell’s small business clients complement its strengths in blue-chip corporates and retail banking.

Torres told analysts that BBVA had already received a positive response from some Sabadell shareholders.

“We have received expressions of interest and reaching out from Sabadell’s shareholders, some of which are quite important in their [capital] with a favourable opinion on the transaction,” he said.

Sabadell declined to comment on BBVA’s decision to go hostile.

In setting out its tender offer, BBVA stuck to the terms that Sabadell’s board had rejected. BBVA, led by chief executive Onur Genç, is offering one newly issued share for every 4.83 Sabadell shares.

Shares in BBVA fell a further 5 per cent on Thursday, a drop that left the offer valuing each Sabadell share at €2.02 and the bank at €10.94bn. Shares in Sabadell climbed 4.5 per cent.

BBVA requires the acceptance of 50.1 per cent of Sabadell shareholders for the offer to succeed. It must also gain the approval of the European Central Bank and regulators in Spain, the UK and Mexico.

Francisco Riquel, analyst at Alantra Equities, said the hostile bid risked turning into a “lose-lose for both banks”, but that the deal could go ahead and make sense if the lenders began to negotiate and were able to agree on price. BBVA said that if a deal were to happen, it might not close until the middle of next year.

Sabadell on Wednesday took the unusual step of publishing a private email sent on Sunday by Torres to its chair Josep Oliu in which BBVA indicated it would not increase its bid.

“I consider that it is very important that your board of directors knows that BBVA has no room to improve its economic terms,” Torres wrote.

The deal would bring together the third- and fourth-largest banks in the Spanish market, creating a lender with the biggest domestic balance sheet. A deal would also raise questions over the future of UK high-street lender TSB, which Sabadell acquired in 2015.

CaixaBank is the biggest bank in the Spanish market, though Santander has the largest market capitalisation and far larger global operations.

BBVA employs about 117,000 people while Sabadell has a 19,000-strong workforce. Torres said it was too early to assess how many jobs would be affected should the deal go ahead.

Mark Kelly, of MKP Advisors, said the deal was likely to be affected by regional politics. Sabadell is still seen as a Catalan bank, although its headquarters is now in Alicante. Ahead of the regional elections, one pro-independence candidate said it would be bad news to “lose” the bank.

Torres, a former partner at consultancy McKinsey who joined BBVA in 2008 and became chief executive seven years later, was behind an attempt in 2020 to buy Sabadell. Merger talks broke down after two weeks following disagreements over pricing.