BBVA’s hostile takeover proposal for Banco Sabadell has shaken the foundations of Spanish finances this Thursday. The operation will have, if completed, real effects on workers, clients, investors or businessmen, by sharpening the concentration of Spanish banking in a few hands. But for that there are a few months left; For now, BBVA’s announcement marks the beginning of hostilities in a high-flying financial battle with multiple derivatives. These are the keys, already purged of legal and financial jargon, of an operation that will mark the economic news for the coming months.
What does a hostile takeover mean?
A takeover bid (acronym for public acquisition offer) is a purchase offer for a listed company that is addressed to all shareholders of said firm. It is a business decision (buying another company), but also a commercial process subject to regulations that specify what the parties must do (and what they cannot do). That it is hostile means that it is done behind the backs of the managers of the target company.
Why has BBVA launched it now?
Because the Sabadell board of directors rejected BBVA’s proposal last week. The proposal of May 1 was addressed to the Sabadell board with the aim of agreeing on a merger that would then have to be approved by the shareholders. Given the rejection of the leadership of the Catalan entity, BBVA has gone directly to the shareholders, to whom it presents an offer to sell their shares in Banco Sabadell and, thus, achieve control.
Are hostile takeovers between banks common?
The non-agreed offer formula is not usually common among banks; In fact, the last attempt dates back to 1988 when Banco de Bilbao tried to buy Banesto (although it did not receive permission to launch the takeover bid). Mergers in the Spanish sector have always been either agreed upon or sponsored by the Government to avoid the fall of an entity. This was the case with the purchase of Popular by Santander in 2017. This was also the case with the merger of Caixabank with Bankia in 2020. Or the process of concentration of small savings banks.
What does the BBVA offer consist of? Is it firm?
It offers the same as last week: exchange 4.83 Sabadell shares for each one of BBVA. This represents a premium of 18% over the Catalan bank’s price at the close of Wednesday, and 30% over the level prior to the first information about the merger. Once announced, the offer cannot be withdrawn, unless the conditions established by the bank are not met: reaching 50.01% of the capital and obtaining authorizations from the CNMC and the BBVA board. At Wednesday’s prices, the takeover values Sabadell at 11.6 billion euros.
Why does BBVA want to buy Sabadell?
The hostile takeover marks the second attempt (or third, depending on how you look at it) by the entity chaired by Carlos Torres to buy the Catalan bank in just four years. In 2020, friendly negotiations failed due to differences in price, and this Monday Sabadell decided not to even sit down. For BBVA the operation is positive because it gains weight in Spain (where it had lost second place to Santander) and, above all, because it dilutes its exposure to emerging markets. In 2023, BBVA obtained 61% of its business in Mexico and Türkiye. With Sabadell he would also gain business from companies, where the Catalan entity is very strong, and a presence in the United Kingdom through the TSB bank.
Why does Sabadell accuse BBVA of failing to comply with the regulations?
The confrontation between the two banks rose even higher on Thursday night, when the entity chaired by Josep Oliu accused BBVA, through a communication to the market supervisor, of not complying with takeover regulations. According to Banco Sabadell, the information provided by the entity headed by Carlos Torres is incomplete and affects the market. Sabadell’s accusation points out that BBVA, in the conference with analysts held on Thursday morning, provided information to the market that was not contained in the official takeover announcement. The article of the regulations to which Banco Sabadell refers indicates that “from the public announcement of a takeover bid until the presentation of the offer, […] the offeror, the members of its administrative and management bodies […] and the others involved in the operation will refrain from disseminating or publishing by any means any data or information that is not included in the prior announcement of the offer.”
How do the regulations affect what Sabadell can or cannot do?
Yes and no. The regulations prohibit the offered company from making decisions focused only on torpedoing the takeover bid if these harm the shareholder. This concept, called “duty of passivity”, would prevent, for example, Sabadell from massively issuing shares or selling part of the business if these decisions could impede the offer. But Sabadell could take actions to convince the market that it is better not to sell: raise the dividend or present a new strategic plan. The entity that receives the takeover bid can also look for an alternative buyer that offers more money than BBVA, as this is a way to complicate the operation that benefits the small shareholder, since it will have a better price.
What does the market think about the possibilities of the takeover bid?
This Thursday BBVA shares fell 6.71%, while Sabadell shares rose 3.17%. It is the normal reaction in concentration operations since any takeover bid comes with a premium. The market has reduced the premium offered by BBVA, from 18% to 7%, but has not fully adjusted it. This means that investors do not take the success of the operation for granted: if that were the case, they would buy Sabadell shares and sell BBVA shares. Analysts, for their part, are also not clear about the path of the offer, especially because it consists exclusively of shares, which greatly limits its attractiveness for Sabadell shareholders.
What deadlines are managed for this operation?
BBVA estimates six months. According to the regulations, BBVA has one month to present the offer documentation (and the CNMV seven business days to accept it for processing). Afterwards, the stock market regulator has 20 days to analyze this documentation and approve it, but both the necessary administrative authorizations (the national commission and the ECB) can “stop the clock”, as can the request for additional documentation. In fact, this part of the process can take several months. For the CNMV to approve the offer, it is also required that BBVA shareholders give the green light to the offer at a meeting. Once the offer is approved by the CNMV, the takeover acceptance period begins (when investors can sell their securities if they want), which can last from 15 to 70 days, at the buyer’s discretion.
How will customers notice it?
Contracts already signed, such as a mortgage or a term deposit, cannot change due to a change of owner. Everything else is unknown, although if the offer is successful it is expected that the account number, fees, branches, cards (and the possibilities of withdrawing money) or the Internet banking application will change. However, in other operations, such as the absorption of Bankia by CaixaBank, the authorities established a transitional period to limit the impact on customers. In general terms, the integration of banks reduces competition in the sector, so it is presumed that the client will not benefit. The Bank of Spain has pointed out on numerous occasions that the concentration of the sector is one of the reasons why entities have not transferred the rise in rates to deposits.
Will there be layoffs and office closures? What will happen to the Banco Sabadell brand?
BBVA has indicated that it expects cost savings (synergies, in financial jargon) of 750 million euros per year and restructuring costs of 1,450 million. He has not detailed what this restructuring consists of, although he has highlighted that “all decisions to integrate both squads will be guided by principles of professional competence and merit, without adopting traumatic measures and with all guarantees.” Later, in the meeting with analysts this Thursday, Carlos Torres, president of the bank, admitted that there will be departures. This is common in banking mergers, which have always led to closures and layoffs. The 750 million expected savings are equivalent to approximately one third of Sabadell’s total costs in 2023. Regarding the brand, “the use of the Sabadell brand will be maintained, jointly with the BBVA brand, in those territories or businesses in which may have a relevant commercial interest.” BBVA proposes that the new bank have two operational headquarters, in Madrid and Sant Cugat.
What does the Government think?
Although the Executive reacted prudently to the friendly merger proposal, the hostile takeover has caused a rejection that leaves no room for doubt. The Ministry of Economy has aired its opposition in substance and form, alluding to both the impact of the merger on the banking system and competition and its hostile nature. In an interview on RTVE’s Channel 24 Hours, Minister Corps has summarized all this concern in a single sentence and has stressed that “the Government has the last word when authorizing” the operation. Representatives of the Popular Party and, above all, the Catalan Government have also spoken out against it.
And the ECB or the Bank of Spain?
The ECB, through Vice President Luis de Guindos, has assured that the European supervisor will analyze the operation from the prism of financial stability, that is, whether the banking system is more solid with the merged bank or not. The governor of the Bank of Spain, Pablo Hernández de Cos, stated this Tuesday that “it is a good time to pay attention to what is the optimal level” of banking concentration, after remembering that in Spain said concentration is now greater than that of the rest of the The EU.
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