Spanish bank BBVA (BBVA.MC) presented a 12.23 billion euro ($13.11 billion) takeover offer for rival Sabadell (SABE.MC) directly to shareholders on Thursday, turning to a hostile bid after Sabadell's board rejected the same proposal this week.
BBVA's decision comes after Sabadell's board on Monday said the unsolicited bid significantly undervalued the bank's potential and growth prospects. The board repeated that position on Thursday.
BBVA aims to create a lender with more than 100 million customers globally and assets exceeding 1 trillion euros, second only to Santander among Spanish banks.
"We are presenting to Banco Sabadell's shareholders an extraordinarily attractive offer to create a bank with greater scale in one of our most important markets," said BBVA's Executive Chairman Carlos Torres Vila.
Hostile takeover bids are rare in European banking. A recent example was Intesa's (ISP.MI) successful takeover of UBI Banca in 2020.
The Spanish government opposes the hostile takeover bid and is concerned the merger would have potential harmful effects on the Spanish financial system and impact jobs and customers, a source at the Economy Ministry said.
BBVA's chairman told analysts on a call on Thursday that he was confident the government would appreciate the value of the proposed deal "once the dust settles" on recent events. He acknowledged that upcoming elections on Sunday in the Spanish region of Catalonia, where Sabadell is based, made for "a bit of a charged environment."
Shares in BBVA, which dropped after the merger proposal was first announced last week, fell 5%, while Sabadell shares rose around 4%.
"In our view, the deal is now a question of price and that both banks negotiate and abandon the hostile route," Alantra analysts said in a note, adding that it remained to be seen whether Sabadell would be willing to negotiate.
"In our view, a hostile bid could be a lose-lose for both banks. Sabadell would defend itself, but the damage to the franchise remains to be seen as this could be a lengthy process," they said.
BBVA, Spain's second-biggest bank by market value after Santander (SAN.MC), offered an exchange ratio of 1 newly issued BBVA share for every 4.83 Sabadell shares, a premium of 30% over April 29 closing prices.
MKP Advisors said they did not see BBVA's takeover offer, which they noted would need acceptance from 50.01% of Sabadell shareholders, presenting any major antitrust issues.
COST SAVINGS
It is the second attempt at a tie-up between BBVA and Sabadell. They called off merger talks in November 2020 after failing to agree on terms, including the price tag.
The latest move comes as Spanish banks have been looking for ways to increase revenue as a boost from high interest rates begins to fade.
Sabadell has a large retail shareholder base accounting for almost half of its shares, with big institutional owners including BlackRock and Dimensional Fund Advisors.
Buying Sabadell would allow BBVA to diversify from Mexico, its main market, and other developing economies such as Turkey and South America and focus on its domestic market.
BBVA Chief Executive Onur Genc said, "all stakeholders will benefit from this operation".
"Banco Sabadell has done an excellent job, with remarkable progress in recent years, and now its shareholders can join an entity with an unparalleled combination of growth and profitability in Europe," Genc said.
The deal, which BBVA estimates could bring cost savings of 850 million euros before taxes, would give Sabadell shareholders a 16% stake in the combined lender.
The combined entity would overtake Caixabank (CABK.MC) as Spain's biggest domestic lender with over 625 billion euros in assets in the country, compared with Caixabank's just over 574 billion euros.
Spain's banking sector has seen a period of consolidation as lenders seek to cut costs and boost scale. Spain now has 10 banks, down from 55 before the start of the 2008 global financial crisis.
($1 = 0.9307 euros)
