Banco Bilbao Vizcaya Argentaria SA took an €11.5 billion ($12.4 billion) bid for Banco de Sabadell SA directly to shareholders, a rare hostile move that the Spanish government said it opposed on concerns over job cuts and reduced competition.
Spain's second-largest bank is making an all-share offer with similar terms to the previously rejected offer it outlined in a letter to Sabadell's board on April 30, according to a BBVA filing on Thursday.
The move to go hostile — which has little precedent in Spanish banking since the late 1980s — underlines how relations have increasingly soured between the two lenders ever since news of the potential deal emerged last week. The bid was immediately criticized by the Spanish government, which said the deal could increase the risk of instability in Spain's financial system.
Economy Minister Carlos Cuerpo said in an interview with the state television broadcaster TVE that the government has the final say on any deal. The deal could be bad for competition and add uncertainty and volatility to the country's financial sector, he said.
The comments come ahead of regional elections in Catalonia on May 12, with Prime Minister Pedro Sanchez's Socialists as the front-runners. Sabadell is a Catalan bank and politicians in the region have raised concerns over its acquisition. The two banks employed around 140,000 people worldwide at the end of March.
Even before the Spanish government's intervention, analysts noted that the offer looked unlikely to succeed. "At these prices, the offer is not attractive" and should be rejected, Renta 4 analyst Nuria Alvarez said.
BBVA shares fell 6% in Madrid while Sabadell rose 3%. The offer proposes an exchange ratio of one newly issued BBVA share for every 4.83 Sabadell shares and values the smaller lender at a premium of about 18% compared to Wednesday's closing price.
Sabadell's board abruptly spurned an approach earlier this week, saying the bid "significantly undervalues the potential of Banco Sabadell and its stand-alone growth prospects."
On Wednesday, Sabadell released a May 5 letter from BBVA Chairman Carlos Torres to Sabadell's Chairman Josep Oliu in which Torres said BBVA could not improve the offer.
In the letter, Torres said that the drop in BBVA's shares after the original bid became public "absolutely prevents us from being able to pay more."
The combination would create a new Spanish banking giant with a joint balance sheet of more than €1 trillion of assets. The combined market capitalization of BBVA and Sabadell would be about €70 billion, or roughly equal to the valuation of Spain's largest lender, Banco Santander SA.
BBVA, which said the combined lender would have a loan market share of 22% in Spain, pledged to maintain its current shareholder distribution policy and a commitment to distribute any excess capital above 12%.
The statement from BBVA also estimated that the deal would:
- Boost earnings per share by 3.5%;
- Generate return on invested capital of about 20%;
- Slightly reduce CET1 — a key measure of capital strength — by about 30 basis points.
The latest offer is conditional upon its acceptance by 50.1% of Sabadell shareholders. It is also contingent on various antitrust and regulatory approvals.
This is the second time BBVA is attempting to acquire Sabadell as both lenders held short-lived negotiations in late 2020 about a deal, before the talks fell apart over the price.
The latest offer values Sabadell at a price-to-tangible-book-value of close to 1, according to Bloomberg Intelligence. Suitors offered a median 0.55 times book value in takeovers of European lenders announced over the past three years, according to data compiled by Bloomberg.
Europe's bank leaders for years have emphasized the need for transformational deals to stand out in a fragmented market that's glutted with thousands of smaller, regional lenders. The lack of common deposit protection across the European Union and cumbersome regulations have stymied such efforts across borders.
