Sabadell rejects the merger with BBVA and will fight to remain alone

After seven hours of discussion, the Sabadell board has rejected the merger offer at 2.26 euros per share proposed by BBVA.

"The board considers that it significantly undervalues ​​the Banco Sabadell project and its growth prospects as an independent entity," states the relevant fact sent to the CNMV.

The board says it has "full confidence" in the bank's growth and its financial objectives.

It also ensures that, as an independent entity, "it will generate greater value for its shareholders" and adds: "The board believes that this decision is, furthermore, aligned with the interest of Banco Sabadell's clients and employees."

Sources close to the leadership assured EXPANSIÓN that the decision has been made leaving aside "personal biases" and "without emotional elements", following a "scrupulous and impeccable" governance procedure. The council was attended by executives from Goldman, Morgan Stanley and Uría Menéndez.

Sabadell has analyzed in detail the degree of compliance with the strategic plan and believes that it can even exceed it. And it has concluded that the difference in value compared to BBVA's offer is "significant."

This applies to shareholders, customers and employees alike.

"We regret that the board of Banco Sabadell has rejected such an attractive offer," BBVA sources stated yesterday.

BBVA ADRs listed in New York reacted to the news with a rise of 3.12%.

For now, and as a nod to its 200,000 shareholders, the Sabadell board yesterday reiterated the commitment announced a few months ago that it will distribute any excess capital over the 13% of CET 1. It put concrete numbers to that objective. The entity has promised that it will distribute a total of 2.4 billion euros (including share buybacks and dividends) between 2024 and 2025. The bank warns that part of this plan is subject to approval by regulators.

At Sabadell they indicate that the bank's priority is to execute the strategic plan. Its CEO stated a few days ago that the bank will continue to increase profitability, which is already close to the cost of capital, this year and next, even if interest rate cuts begin in the summer.

After the council and in a video sent by the president of Sabadell to the entire staff, Josep Oliu stated that the council "has great confidence" in the progress of the bank and in the plans that are being executed "in all its businesses and geographies ".

Sabadell's refusal raises speculation of a hostile takeover because Sabadell lacks a core shareholder base and 95% of the shares are listed on the stock market.

At Sabadell they do not rule out that BBVA could launch a hostile takeover, although they trust that this formula is unlikely.

This is a much more expensive purchase alternative for BBVA and, above all, with a high execution risk. Half of Sabadell's capital is in the hands of small investors. This investor profile usually follows the advice of the council when considering going into the operation.

The premium required to be successful could be around 50%, according to some estimates. It is also not clear whether BBVA could afford it. According to Alantra, the numbers only work out if you pay a 40% premium.

On the other hand, failure could pose a serious reputational problem for BBVA.

In the Spanish banking sector there has not been any hostile takeover attempt for forty years, when Banco Bilbao failed to take control of Banesto. In Europe, the only precedent is that of Intesa Sanpaolo on UBI Banca in 2020, in the middle of the pandemic, which ended up going ahead.

From the beginning, Sabadell described BBVA's merger proposal as "unsolicited." The shapes were surprising. BBVA informed the CNMV of its intention to buy Sabadell just four minutes after sending the mandatory letter to the board of the Catalan bank. There was no prior contact.

The offer proposed one new BBVA share for every 4.83 BBVA shares. It was subject, therefore, to the evolution of prices.

BBVA shares have accumulated a drop of 9.72% since April 29. And that has made the premium offered less attractive, which had fallen from the initial 30% to 7.79% in six trading sessions.

In recent days, sources close to Sabadell assured that, by itself, the bank is capable of reaching the 2.26 euros per share offered by BBVA on the stock market.

"The significant drop and volatility of BBVA's share price in recent days has generated additional uncertainty about the value of the proposal," says Sabadell in the relevant fact.