BBVA appeals to the Supreme Court against the Spanish government's terms in the takeover bid for Sabadell.

MadridBBVA has decided to appeal to the Supreme Court the conditions that the Spanish government has imposed on the hostile takeover bid for Banc Sabadell, as announced by The Spanish and BBVA sources confirm to ARA. In this way, the financial institution materializes the warning it had issued against Pedro Sánchez's administration when it decided to approve additional conditions to those previously approved by the National Commission of Markets and Competition (CNMC) and linked to the general interest.

Specifically, the Council of Ministers agreed to impose on BBVA keep Banc Sabadell separate for three years, with the possibility of extending it for two more years, for a total of five years. This means that during this period, BBVA cannot merge with Sabadell. Should the takeover bid be successful, BBVA will only be able to acquire the Vallecas-based bank as a subsidiary, which directly impacts the synergies and cost savings of the transaction (approximately €850 million over three years), as BBVA itself has acknowledged.

"This [judicial] route of course always exists," said BBVA president Carlos Torres, at the beginning of June, when the Spanish government's decision was still unknown, but it was sensed that it would make a move due to the public rejection it has always shown towards the takeover bid. When Pedro Sánchez laid his cards on the table, BBVA reaffirmed that it was not ruling out any response, not even a judicial one: "It is our duty to have all alternatives and possibilities [open] within this analysis [of the Spanish government's conditions]," stated BBVA's general manager in Spain, Peia Belau.

Sources at the Bilbao bank assured ARA that the decision to open the judicial route "does not interfere" with the takeover process, which is moving towards its conclusion: the takeover acceptance period (the vote by Banco Sabadell shareholders) is scheduled to begin in September, once the Securities and Exchange Commission (CSE) approves the takeover bid. In fact, this week BBVA has reaffirmed its willingness to continue with the operation, despite the obstacles of recent weeks: from the additional conditions imposed by the Spanish government to Sabadell's sale of its British subsidiary TSB and the distribution of an extraordinary dividend. For all these reasons, BBVA itself had reminded that it could back out..

Different interpretations

BBVA has always expressed discomfort with the idea that the Spanish government could interfere in the takeover bid. When it decided to approve the additional conditions, the bank already explained that it disagreed with the Spanish government's interpretation of the 2007 Competition Law, the law that allowed the government to comment on the transaction.

The Competition Law establishes that when a takeover bid reaches Phase 2, as is the case with the hostile takeover bid for Banc Sabadell, the Ministry of Economy can submit the CNMC's final opinion to the Council of Ministers. If the Spanish government believes the transaction affects the public interest, it may issue its opinion. However, the opinion can only be based on this reason: the public interest.

BBVA, however, interprets this law as only allowing the government the possibility of maintaining competition conditions or relaxing them, but not tightening them, as has occurred in the case of Sabadell. Furthermore, it considers that the conditions agreed with the CNMC "go beyond" competition and also cover the general interest.

The wording of the law, however, is open, as the CNMC itself has acknowledged: "The law helps us little because it doesn't tell us whether the government can impose more or fewer conditions. It says nothing," reflected the president of the organization, Cani Fernández, last June. But Fernández indicated that "the spirit of the law was complied with" when the Spanish government's decision was based on the impact on the general interest, and not on competition, a matter on which only the CNMC can rule. In the case of the takeover bid for Sabadell, Pedro Sánchez's administration considered that there was indeed an impact on the general interest, and therefore decided to tighten the conditions. A decision that is unprecedented.

Sources from the Ministry of Economy maintain that the government has acted "at all times" in line with Spanish regulations and point out that the Council of Ministers' decision has the endorsement of the State Attorney's Office and was made "respecting the participation of all the institutions involved and their powers." "In any case, we respect BBVA's decision," indicate sources from the ministry headed by Carlos Cuerpo.

Be that as it may, with BBVA's decision, the takeover bid has reached the Spanish courts. Here, not only will the Supreme Court's interpretation of the Competition Law be key, but also its understanding of the general interest. As explained by ARA, the Supreme Court's interpretation is open: "an indeterminate legal concept."

Meanwhile, the Spanish government also has an open front in Brussels. The EU executive has opened an infringement procedure against Spain, raising doubts about whether the Competition Law violates European Union law. Brussels considers the Competition Court's ruling to be sufficient and comprehensive. In any case, the EU executive does not intend with this decision to directly intervene in the Moncloa operation, but rather to force Spain to reform its legislation.