Spanish bank BBVA (BBVA.MC) said on Wednesday it had submitted a merger proposal to Sabadell (SABE.MC), valuing its smaller rival at about 12 billion euros ($12.8 billion).
A union of the country's second and fourth-largest banks - following a failed similar attempt in 2020 - would create a lender with over 1 trillion euros in total assets and would mark the latest consolidation in Spain's banking sector.
The possible merger would allow BBVA to diversify away from Mexico, its main market, and developing economies such as South America and Turkey, and focus on its domestic market as banks try to raise revenue by scaling up their business as a boost from high interest rates fades.
The new lender would have more than 100 million customers globally, and aim to be the "largest bank by market capitalisation in the euro area", BBVA said in a statement.
Propped up by higher interest rates and robust profits, European banks are flush with cash and their shares have hit multi-year highs, boosting speculation of more domestic M&A activity, although clinching deals is far from easy.
PREMIUM OF 30%
BBVA said it had 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.
The lender said its board had approved proposal terms, and it was ready to "move forward immediately with the transaction."
Following the proposal, Sabadell (SABE.MC), which has seen its share price grow five-fold since 2020, said on Wednesday it was up to its board to assess the offer.
Sabadell and BBVA called off merger talks in November 2020 as they could not agree on the terms.
"We consider this to be an attractive offer for Sabadell's shareholders, although there is a possibility that it might get tweaked upwards," said RBC analysts.
"We find it unlikely that BBVA would want to keep the TSB asset if the sale completes, due to the bank being subscale (#10) in the UK," they added, referring to Sabadell's British bank, TSB.
A 30% premium would leave Sabadell trading at one times tangible book value, Spanish broker Alantra said in a note issued before the offer's terms were disclosed on Wednesday.
The Spanish stock market was closed on Wednesday for a public holiday.
The potential merger follows a period of consolidation in the sector as Spanish banks seek to cut costs and boost scale. Spain now has 10 banks, down from 55 before the start of the 2008 global financial crisis.
COSTS SAVINGS
BBVA said that combining entities would make strategic sense, given their complementary business models, with Sabadell a significant player in serving small and medium enterprises.
Sabadell's presence in the UK through TSB - which it bought in 2015,- would add to BBVA's global scale and its leadership in Mexico, Turkey and South America, BBVA said.
The possible transaction would be accretive in earnings per share (EPS) from the first year after the merger, it said, achieving an EPS improvement of approximately 3.5% once savings associated with the merger materialise.
It estimated these savings at approximately 850 million euros before taxes, giving a return on investment of close to 20% for BBVA shareholders.
The impact on its core tier-1 capital ratio would be 30 basis points at the time of the merger, BBVA said.
Under BBVA's proposal, three members of Sabadell's current board would join BBVA's board of directors as non-executive directors.
($1 = 0.9375 euros)
