How BBVA can outsmart the Spanish government

A long timeline for the bid could actually be the bidder’s greatest ally. Carlos Torres says the bid for smaller rival Sabadell is “unstoppable” but they will have to overcome many obstacles along the way.

The elections in the UK and France in recent days have overshadowed most other European news. But in Spain A political storm is also brewing, at least for banking investors, as the fate of the largest banking deal in Europe since UBS’s merger with Credit Suisse, depends on the views of the president, Pedro Sanchezand its left-wing coalition government.

When BBVA, Spain’s second-biggest bank by market value, said in May that it wanted to buy smaller rival Sabadell, it triggered a strong backlash from the board and sparked a focus on a BBVA hostile takeover biddirectly to shareholders.

The Spanish government also expressed its opposition to an agreement “in both form and substance” given the impact the operation would have on competition and employment.

Despite everything, last Friday the BBVA shareholders They supported the necessary increase to finance the takeover bid entirely in the bank’s shares, currently valued at around 10 billion euros, based on their exchange offer of each new BBVA share for 4.83 shares of Sabadell.

Last week, the irrepressible optimist president of BBVACarlos Torreshe said to Financial Times that the bid was “unstoppable.” In reality, even discounting government opposition, there are multiple obstacles in what will be a very long road, given that Spanish rules on mergers and acquisitions typically result in negotiation processes that drag on for months, if not years. And any of these obstacles could stop the process dead in its tracks.

The next challenge is that the European Central Bank must approve the agreement through a prudent lens – probably a mere formality, given the decent capital buffers of both banks, and the Spanish regulator, the National Securities Market Commission (CNMV), It could also take a benign stance, although it is expected to force BBVA to be exhaustive in its risk disclosure – particularly with regard to government opposition and what this would mean in practice.

That is, an acquisition could still be made, but it could not guarantee the planning of estimated cost savings. 850 million of euros before taxes when adding synergies.

There is also a antitrust regulation to be saved by Spanish regulators.

Even Torres is realistic that it may be necessary to carry out alienations.

Analysts point to a potentially excessive market share in Cataloniaparticularly in small and medium-sized business banking. However, these obstacles are not the only problem for BBVA.

Anything else would be just as serious. volatility in stock prices throughout the long calendar: twists that could be magnified if the merger arbitrage funds begin to swarm.

Los quarterly results will be a triggering factor. But so will the impending change in the presidency of Mexicoa country that generated more than half of BBVA’s net profits in the first quarter.

And then, of course, there is the small matter of convince Sabadell shareholders so that they sell.

Institutions that account for about a quarter of the investor base may be receptive, according to Bloomberg data analysis. But decisive to closing the deal could be the fact that about 50% of Sabadell’s shares are owned by retail investors (including many of its own clients and staff).

Torres hopes to be able to influence them with the better prospects that would come from owning BBVA shares that are trading above their book value and with a premium of close to 50% compared to Sabadell shares.

The president insists that the current terms will not be changed, although bankers believe that an element of cash to sweeten the deal for retail investors.

Above all is the Spanish government’s antipathy towards the agreement, especially since Sánchez’s coalition is unstable and is backed by Catalan independence parties.

Torres, however, is determined, patient and shrewd. At first glance, for example, the proposed deal provides for an unusually modest number of synergies, without branch closures or job cutsdespite the fact that between them – BBVA and Sabadell – they have 3,000 branches, between six and eight times more than a comparable bank in the United Kingdom.

When the groups discussed a deal four years ago, they planned bolder synergies that exceeded 1 billion euros, according to people familiar with the situation. Experts believe the savings could be 50% higher by closing at least 20% of the branches.

Saying that publicly would, of course, kill any prospect of government approval. But if Torres can downplay the points of contention in the short term and keep the deal process moving, the extended transaction timeline may actually be his greatest ally. At some point, today’s hostile government is likely to give way to a more business-friendly one.

© The Financial Times Limited [2024]. All rights reserved. FT and Financial Times are registered trademarks of Financial Times Limited. Redistribution, copying or modification is prohibited. EXPANSIÓN is solely responsible for this translation and Financial Times Limited is not responsible for its accuracy or quality.

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