BBVA’s board of directors approves the hostile takeover bid for Banco Sabadell. BBVA shareholders have given a resounding yes to the bank to carry out a capital increase of up to 19% to fund the takeover bid for Banco Sabadell. With a quorum of over 70%, 96% of the capital has supported the transaction, so the acquisition of the Catalan bank passes the first market test with flying colours. It must now obtain the necessary authorisations – from the European Central Bank (ECB), the National Commission for Markets and Competition (CNMC) and the National Securities Market Commission (CNMV) – and an acceptance of at least 50.01% of Sabadell’s capital.
The overwhelming support of BBVA’s 726,000 shareholders is significant not only because the bank has managed to meet the first of the conditions to which the takeover bid is subject, but because it can be an early indicator of its success. BBVA and Sabadell share many shareholders, who have just made their opinions on the offer. For example, the investment fund giant BlackRock is the largest shareholder in both banks, with 5.9% of BBVA and 6.7% of Sabadell. Other large funds such as Vanguard, Capital Group and Norges are also present in both banks.
The board therefore followed the expected script. The main international voting advisors (ISS and Glass Lewis) and the national ones (Corporance) recommended voting in favour of the operation, although they expressed their doubts about certain elements such as the hostile nature or the opposition of the Government. Many large funds, such as the Norwegian Norges or the Canadian CPPIB, had already announced their favourable vote. The result of the meeting implies strong support for the board not only from large funds and institutional investors, who represent 62%, but also from retail investors.
However, a positive vote today on the capital increase to finance the transaction does not necessarily mean that, when the time comes to decide whether to sell their shares in the Catalan bank to the Basque bank, they will do so. As Josep Oliu, the president of Banco Sabadell, pointed out on Thursday in a letter to his shareholders, there is still plenty of time left before they have to decide whether or not to go ahead with the takeover bid. And the context may change.
In his speech, BBVA Chairman Carlos Torres tried to remove the hostile atmosphere surrounding the offer. “Our approach has been friendly from the start and remains so,” he said. BBVA first attempted a friendly merger and proposed a merger with the Catalan bank at a rate of 4.83 Sabadell shares for each BBVA share. The board of Banco Sabadell, headed by Josep Olíu as chairman, rejected the offer, considering that it did not reflect the value of the bank if it continued independently. BBVA then turned the friendly merger offer into a takeover bid.
Given the high participation of shareholders – with a quorum Torres explained this move, given the fear that this alleged hostility would drive away shareholders. He added that the board he heads decided to launch this takeover bid because they are convinced “of the strategic rationale of this offer and the positive impact it has on all stakeholders.”
“The power to choose”
In this regard, he explained that BBVA decided to give Sabadell shareholders “the power to choose” when the acceptance period begins, in accordance with the provisions of the takeover bid regulations. “We hope that they appreciate the strategic sense of the operation and decide to participate with us in this great future project,” he said. Torres also reiterated the reasons that led the bank to present this offer. “The objective of this operation is to build a stronger, more competitive and more profitable bank,” he summed up.
Specifically, he referred to the increase in fixed costs that, according to his forecast, the financial sector is facing, which is why he focused on the importance of gaining scale. “With the incorporation of Banco Sabadell into BBVA, we gain scale and dilute fixed costs among a larger customer base, a greater business volume, gaining in efficiency and being able to offer the customers of both entities better products and services at more competitive prices,” he said.
The chairman has defended the operation as a “clear commitment” by BBVA to the Spanish market, which he has described as “attractive for investment”, at a time when Mexico is the bank’s main market. “It is the most attractive project for European banking”, he said, emphasizing that the Spanish economy is “resilient and dynamic”, with a debt ratio below the European average and with an “attractive” profitability of the banking sector. He has assured, in this regard, that with the addition of Banco Sabadell, it will become the second bank at national level in terms of loans.
He also focused on the bank’s strength in the SME segment, which, along with the self-employed, he says is a priority for the bank. According to his presentation, Sabadell has a 12.7% share in this area, compared to BBVA’s 11.5%. In this regard, he stated that they are seeking to “combine the experience of both banks” and that they will strengthen this business segment. He reiterated the promise to maintain all current lines for 12 months.
As its main financial arguments, it has recalled that the offer will entail synergies of 850 million euros, which it promises will focus on fixed and technological costs, with 1.45 billion euros in costs and a 30 basis point reduction in capital. It has also stated that adding both entities will mean increasing the bank’s book value by 1%, as well as an improvement of 3.5% in earnings per share and a 20% return on capital. As for shareholder remuneration, the bank maintains its commitment to distribute between 40% and 50% of net profit, as well as any excess capital above the 12% target. This has meant paying 13 million euros since 2021, at a rate of 7.8 million in cash dividends and 5.4 million in share purchases.
As for the timeframes of the offer, Torres has acknowledged that the authorization of the meeting is the first step and that he has to go ahead with the authorization of a series of organizations, without mentioning which ones in this case. It will be then that the National Securities Market Commission (CNMV) will make its decision, and then the period of acceptance by the shareholders will begin, which the law establishes must be between 15 and 70 days. “We trust that the process will advance favorably within the foreseen timeframes,” he said, referring to BBVA’s plans for the offer to be ready in six or eight months.
Torres has thus veiledly referred to one of the main risks of the offer, that the National Commission of Markets and Competition (CNMC) takes longer than expected and moves the analysis of the operation to a second phase, which would extend the process beyond what BBVA had contemplated. This could also lead to the CNMV approving the transaction before the CNMC and the shareholders having to decide before the conditions imposed by the Competition Commission are known.
The shareholders then took the floor to ask the president questions. This chapter focused on labour issues, given that a large part of the interventions were made by union representatives. They have demanded that Torres take less traumatic measures, which involve early retirement rather than dismissals and that there are no non-consensual or voluntary exits. The president has continued in this sense with the arguments put forward until now. He has given the example of the 2021 ERE, with over-demand by the workers and has announced that he will seek an agreement with the unions.
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