Spanish Banco Bilbao’s $13 billion bid for Sabadell

Banco Bilbao Vizcaya Argentaria, S.A., better known by its initials BBVA, is a Spanish multinational financial services company based in Madrid and Bilbao, Spain. It is one of the largest financial institutions in the world, and operates in Spain, Portugal, Mexico, South America, Turkey, Italy and Romania.

Hostile takeover announced in May 2024

Spanish bank BBVA took markets by surprise on Thursday after it opted to launch a rare hostile bid for domestic player Banco Sabadell in what one investment firm described as “very strange.”

This is only a few weeks after a different 12 billion euro ($12. 87 billion) bid from BBVA to acquire Sabadell’s shares were turned down by the latter’s board of directors.

The board explained that the initially proposed bid from BBVA “substantially” underestimated the growth opportunities for the bank in the future and noted that a standalone strategy would be far more valuable. That stance was reinforced later as BBVA publicly called for the takeover by taking its all-share offer to the bank’s shareholders.

BBVA said that its bid to take over Sabadell is similar to the merger proposed to Sabadell’s board in terms of funds terms. It described the formation of the second largest financial organisation in Spain if the deal went through, as “extraordinarily attractive.”

BBVA Chair Carlos Torres Vila explained that Banco Sabadell’s shareholders would receive an extremely compelling opportunity to build a bank of greater size for this group in one of its core markets. This would increase both sides’ effectiveness in their respective areas of work.

Hostile takeover bids are unusual in the European banking sector and BBVA’s decision was unexpected. The news resulted in the decline of

BBVA’s stock by 6% while Sabadell’s stocks gained more than a 3% increase.

Carlo Messina, Chief Executive of Italy’s largest bank Intesa Sanpaolo, said to CNBC that there are a lot of obstacles to onboard integration within the region’s banking sector.

The nominations commissioner said that a “friendly acquisition” was not possible in the current conditions, adding that a “hostile” takeover bid was also somewhat challenging.

Chief investment officer at Axiom, David Benamou

speaking to CNBC’s “Squawk Box Europe”, said that the proposed offer “makes sense” from Sabadell shareholders and, in his opinion, it would go through. He said that the specific proposal signifies BBVA will be paying 30% more for Banco Gallego shares than the closing share value of both companies on 29 April. It resonated with the recent talks in Switzerland regarding the merger of Credit Suisse by UBS and concerns about financial stability.

Consolidation, Benamou said, is a growing phenomenon in the European market owing to the fact that most of the regional players are very small compared to their larger US peers.

Spain’s Economy Ministry said in a statement that the government was against the hostile takeover bid by BBVA in Sabadell. The ministry also cautioned that the proposed deal would have negative consequences on the Spanish financial system.

Banco Sabadell’s attempt to stop Spanish behemoth Banc Bilbao

According to a Reuters article (23 July), Spanish giant Banco Bilbao Vizcaya Argentaria (BBVA.MC), wants to buy Banco de Sabadell (SABE.MC), but the latter’s response is effectively to buy itself instead.

Making a convincing case for independence of Banco Bilbao

Sabadell’s CEO César González-Bueno committed to buybacks and dividends worth 2.9 billion euros over the next two years.

Sabadell began 2024 with an 11.5% return on tangible equity target and goals for returning money to shareholders.

An additional factor that worsened the outlook was higher, longer interest rates and the approach by BBVA Chair Carlos Torres Vila, whose all-share offer became hostile at the beginning of May. González-Bueno has his sights set on achieving more than 13% this year and even the coming year. He also aims to award investors more than one-quarter of the group’s value via the buyback and cash over a two-year span.

What is enabling these new targets is Net Interest which is the sum of income from loans and bonds minus the interest given out to the clients. It increased by 10% y-o-y from the same period in the previous year. González-Bueno now forecasts a mid-single-digit growth for this year, against the low-single-digit growth predicted back in January. Furthermore, he indicated that expectations for next year’s total are higher, even if the ECB reduces rates.

If the two new targets are anywhere close to being plausible, then BBVA’s proposal is definitely not.

Sabadell shares may actually not drop significantly lower even if the shareholders reject the bid from BBVA. Without an offer, González-Bueno’s bank would have increased its profit in line with the 10% increase in numbers for the local competitors such as CaixaBank (CABK. MC) and Bankinter (BKT. MC).

Sabadell’s shares would now be around 1.92 euros, and only 9% below the current value of the BBVA bid.  Even that’s probably conservative: on average, analysts had increased +18% the 2025 earnings per share target in Sabadell since before the bid, which is more than double the 8% average increase for CaixaBank and Bankinter.

BBVA’s Chair Torres may have to bid higher to SEC to get what he wishes for. He could also claim that in the same way ECB rates will cause earnings to fall, so will Sabadell. But the estimates compiled by Visible Alpha suggest that Sabadell’s net interest income will remain stable for several years.

Banco de Sabadell on 23 July said it now believes it can deliver tangible-return on equity greater than 13% in 2024, above the prior target of more than 12%. The lender battling to fend off a hostile takeover by the larger Spanish peer (Banco Bilbao Vizcaya Argentaria) reckons it can achieve the same for a 13% return in 2025 too even if interest rates are cut.

Banco de Sabadell stocks increased by 2% to 2 euros on 23 July.

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