Spanish bank Sabadell rejects €12bn BBVA merger proposal

Madrid — Sabadell’s board rejected a merger proposal by larger rival BBVA for a €12bn all-share merger, the Spanish lender said on Monday.

The country’s fourth-largest lender by market value said its board believed BBVA's proposal significantly undervalues the potential of Banco Sabadell and its growth prospects, calling the offer unsolicited.

Propped up by higher interest rates and robust profits, European banks are flush with cash and their shares have hit multiyear highs, boosting speculation of more M&A activity, though clinching deals is far from easy.

Last week, BBVA had offered an exchange ratio of one newly issued BBVA share for every 4.83 Sabadell shares, a premium of 30% over April 29 closing prices.

“We regret that the board of Sabadell has rejected such an attractive offer,” a spokesperson for BBVA said on Monday, without elaborating further.

Last week, BBVA said it was ready to “move forward immediately with the transaction” and chair Carlos Torres in a letter called on Sabadell’s board to give its assessment of the proposal as soon as possible.

In its offer unveiled on Wednesday, BBVA said it aimed to create a lender with more than 100-million customers globally and total assets exceeding €1-trillion, second only to its rival Santander among Spanish banks.

In a statement to the stock market supervisor on Monday, Sabadell said the recent material decline and volatility in the BBVA share price increased the uncertainty around the value of the proposal.

Based on the May 6 closing prices of €9.840 for BBVA and €1.8895 for Sabadell, shares in Sabadell were well below the €2.2587 per share BBVA was offering taking into account the 30% premium against April 29.

Since the indicative offer was announced by BBVA, Sabadell have risen 8.8% while shares in BBVA have fallen 9.7%.

Taking into account Monday’s closing share price, the premium would just be equivalent to 7.8%, valuing Sabadell at around €11bn.

Analysts said the gap between the offer and the current share price of Sabadell indicated there was risk that the deal would not go through.

In November 2020, Sabadell and BBVA called off merger talks as they did not agree on the terms, including the price tag.

A combination of the two entities would have now a combined market value of more than €67.5bn, and the new Spanish banking giant would rank as the third-biggest lender by capitalisation in the eurozone.

The combined entity would also overtake Caixabank as the biggest domestic lender in Spain with more than €625bn in assets in the country, compared with Caixabank’s just over €574bn.

On Monday, Sabadell said its board undertook a detailed assessment of BBVA’s proposal and concluded it was not in the best interest of its shareholders.

Since the beginning of the year, shares in Sabadell have risen 70%, while shares in BBVA have risen 20%.

Sabadell further said its board was highly confident in its growth strategy and its financial targets.

It also said its board believes its rejection was aligned with the interest of Sabadell’s clients and employees.

Its board reiterated its commitment to distribute, on an ongoing basis, any excess capital above 13% to its shareholders.

“The excess capital to be generated over 2024 and 2025, together with recurrent dividends during this period, according to a successful completion of the current business plan, is projected to be €2.4bn,” Sabadell said.

Reuters