BBVA continues its bid for Sabadell despite government conditions.

BBVA continues its hostile takeover bid for Sabadell. The board of directors, meeting this Monday, has decided to proceed with the transaction that would lead to the formation of the second largest bank in Spain. “After analyzing this agreement, BBVA has decided not to withdraw the offer, and therefore, it remains valid according to the applicable regulations,” the entity has reported in a significant event sent this Monday to the National Securities Market Commission (CNMV).

The Basque bank makes this decision after several days of analysis, since June 24, concerning the additional condition imposed by the Council of Ministers on the operation. This condition is to keep the banks separate for three years, extendable for another two years, as distinct legal entities, with separate assets and independent management. Bank sources indicate that the decision was made unanimously. However, in recent days, some board members have expressed doubts about proceeding with the transaction, as was Torres’ intention, but ultimately decided to move forward. The chairman aimed to convince his board so that the decision would be supported by all.

The takeover folder reached the Council of Ministers nearly 14 months after BBVA proposed it. This occurred after the National Commission for Markets and Competition (CNMC) stated it would approve the operation, but with a series of commitments to protect credit to SMEs, complicate the closure of branches in depopulated areas, or assure commercial conditions in places with little competition, among other issues. Competition Law establishes that when an operation is analyzed in a second phase by the CNMC, the Council of Ministers can expand or reduce its requirements based on general interest.

The government’s intervention has led BBVA to analyze for days whether it made sense to maintain its offer and how it affected the transaction’s profitability, at 20%, according to the bank’s own calculations when it made the bid. The key was whether it could still benefit from the €850 million in synergies it calculated by May 2024. The issue has been whether the additional condition imposed by the government simply delayed the timeline to achieve these synergies or caused many to dissipate entirely.

In its communication to the CNMV, BBVA does not provide details on the final amount of synergies after the intervention, although it must be specified in the information brochure sent to the CNMV for approval, which must include the conditions imposed by the government and the economic impact. In a video, the entity’s president, Carlos Torres, stated that the operation creates “huge value for the shareholders of both entities” and that the merger represents “an opportunity to create one of the most innovative and competitive banks in Europe.” In this vein, he argues that the union of both firms will give rise to a “more solid entity, with greater scale and the capacity to increase financing to families and businesses by €5 billion annually, thus boosting the economic growth of our country.”

The specifics of this additional condition imposed by the executive regarding what BBVA could or could not do with Sabadell are unclear. As explained by the Minister of Economy, Carlos Cuerpo, they expect the Basque bank to manage both entities “maximizing the value separately.” In his words, this means that during the time the government’s lock lasts, BBVA is prohibited from merging with Sabadell, making a collective redundancy plan due to the operation, or substantially altering the branch network.

The government’s authority to tighten CNMC conditions has also been a contentious point with BBVA in recent weeks. The Basque bank has pointed out that, in fact, Competition Law only grants the executive the power to soften or maintain CNMC requirements, but not to harden them. The government, on the other hand, has interpreted that it can do so, but always based on issues of general interest and not competition. In this particular case, the executive has referred to safeguarding the maintenance of the objectives of sector regulation, protecting workers, territorial cohesion, social policy linked to banking foundations, consumer financial protection, affordable housing, and promoting research and technological development.