Spanish fund managers have been immersed in numbers for two weeks. Analyzing the active and passive hostile takeover launched by BBVA on Banco Sabadell. The entity offers to pay for the operation exclusively with shares, through an exchange of 4.83 Sabadell titles for each BBVA share, exactly the same amount that it proposed on May 1, when the offer was still friendly. Since the first news, many things have happened: the rejection by the Sabadell management, the criticism from the Government and many political groups and the strong depreciation of the BBVA price, which impoverishes the offer. In this context, there are more and more professional investors who do not see it clearly: “perhaps it is better for Sabadell to remain alone.”
Ignacio Cantos is a fund manager at the firm Atl Capital, with 500 million assets under management. “We have had Sabadell shares for a long time. We bought when they were under one euro [hoy cotizan en 1,87 euros] “And at first it seemed to us that the BBVA proposal could make sense, but more and more doubts arise as to whether it would not be better for Sabadell to continue alone.”
One of the factors that is most conditioning the operation is that the purchase proposal is entirely in shares. Since the day before BBVA’s interest in Sabadell became known, the former’s shares have fallen 10% on the stock market and those of the latter have risen 4%, which has made the maneuver less attractive for Sabadell shareholders.
Luis Urquijo is CEO of Muza Gestión, a firm created by the founding family of Banco Urquijo, a bank that was absorbed, precisely, by Banco Sabadell. Son, grandson, great-grandson and great-great-grandson of bankers and investors, he has known the business since the cradle. The manager emphasizes that “BBVA has lost more than 5,000 million euros in capitalization since it launched the offer and Banco Sabadell has increased some 2,000 million, which means that the market has not valued the operation very positively and this puts a lot pressure on BBVA, greatly limiting the possibility of improving its takeover bid. Unless they justified having many more synergies than they have communicated so far.”
According to the calculations presented by BBVA to the market, this transaction will generate synergies of 850 million, with 1,400 million in restructuring costs, or even more. Most of them are explained because BBVA will have to pay to break Sabadell’s agreements in insurance (with Zurich), in asset management (Amundi) and in payment methods (Nexi).
Julián Pascual is president of the investment firm Buy & Hold, with 400 million euros under management. In his opinion, “the problem in this type of merger is that, on paper, the numbers work out perfectly, but then the execution is much more complicated and the shareholder does not usually come out ahead.” Pascual recalls that the great strength in this type of operations is the strong reduction in costs, thanks to the duplication of offices and personnel, which will allow them to close branches and cut staff. “In the end, it’s about scrapping and reducing expenses.”
A fund manager who has Sabadell shares in his portfolio, and who prefers to remain anonymous, explains that the proportion between synergies and restructuring costs seems low to him. “In other mergers that we have experienced in Spain, much greater synergies were generated.” Furthermore, he recalls that if the two banks were combined, “Sabadell would contribute approximately 22% of the business, while its shareholders would keep only 16% of the capital of the new group.”
The great unknown that remains to be resolved is what would become of Sabadell if it continued alone. The bank has gone through some very difficult years, but it has managed to recover from the problems of its British subsidiary. “His ability to integrate rivals is more than recognized, and the restructuring he has carried out is a great success story, which gives him the right to have a future alone without problems,” summarizes the aforementioned manager.
The political problems
In all the investment firms that follow the hostile takeover bid, they are beginning to get tired of politicians. “We will have to see what happens now with the results of the elections in Catalonia, but the Government can continue putting spokes in the wheels of this operation,” says Ignacio Cantos, from Atl Capital. The Minister of Economy, Carlos Body, has clearly shown the opposition of the Executive to the operation. Now, if the CNMV approves the takeover bid, if The European Central Bank (ECB) is inclined to create great national champions“it will be difficult for there to be a total veto of the project,” argues Cantos.
José Ramón Iturriaga, manager of the Okavango Delta fund at Abante Asesores, shares the same opinion. “I don’t think the Government is going to oppose it head-on if the supervisors give their approval.” In any case, the investor remembers that this is going to be a long-distance race, and that the process is going to take more than six months. Iturriaga does consider that it is likely that the operation will go ahead. “It seems to me that it is positive for the shareholders of Sabadell, and also for those of BBVA. And I don’t think it makes much sense for the Government to veto it, because the big three already have a fairly high market share. This does not change much the question of competition.”
Another doubt that hovers over the trading desks is whether BBVA has room to improve its offer. In a letter sent by the president of BBVA, Carlos Torres, to Sabadell, Josep Oliu, it was stated that the proposal had no possibility of going upwards. Some managers take these statements as something typical of a negotiation. Cantos, from Atl Capital, believes that for the takeover to go ahead “there would have to be an improvement in the exchange equation or even incorporate some cash.” A measure to sweeten an offer that has become sour as the days go by.
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