Countdown to the future of Banc Sabadell: the keys to BBVA's takeover bid

BarcelonaSome 200,000 Banc Sabadell shareholders, around 40% of the capital, must decide between this Monday and October 7th whether to accept BBVA's takeover bid, a decisive stage in the history of the Catalan financial institution. Furthermore, just over half of the bank's capital is in the hands of institutional investors, among which BlackRock stands out, first and foremost, which is also BBVA's shareholder. On the stock market, the Catalan bank's shares remain above the price offered by the Basque-based entity, which refuses to improve it, for now.

There are some key aspects to this operation, which BBVA announced almost a year and a half ago and which has been surrounded by controversy since day one, with the opposition of the Spanish and Catalan governments and the different business and economic organizations, such as the employers' associations Pimec and Foment del Treball.

The price

Since last January, Sabadell shares have been trading above BBVA's offer. The Basque bank has insisted that it has not improved its offer, but analysts assume it will do so if it wants the transaction to go ahead, thus generating market pressure. BBVA, which has had to adjust its price three times to Sabadell's dividend distribution, is offering a newly issued share plus 70 cents for every 5.5483 shares of the Catalan bank. Currently, the spread remains negative compared to the offer, at around 8% or 9%. The bank chaired by Carlos Torres insists that Sabadell's current equivalent value "is the best valuation in more than a decade", with the highest share price in over ten years, and that the premium offered "is much higher than that of recent bank takeover bids" in Spain and Europe.

BBVA attributes a large part of the rise in Sabadell shares to the takeover bid. For his part, Banc Sabadell's chairman, Josep Oliu, states that The offer is "even worse than the one presented in May of last year" And remember that the Catalan bank's shares have appreciated 108% since the takeover bid was announced, and BBVA's, 5%. The Basque bank, for its part, highlights that since January 2019, it has returned 397% to shareholders, while Sabadell has returned 341% over the same period. Meanwhile, Spanish banks as a whole have returned 199%, and European banks 221%.

Taxes

Due to the characteristics of BBVA's offer – a combination of share exchange and cash payment – it could end up representing a disadvantage for those who decide to take advantage of it, especially small shareholders. pay more income tax (IRPF) that the cash portion they receive in the tax return to be filed next year. This was confirmed by an association of small Sabadell shareholders through inquiries to the Directorate General of Taxes at the Ministry of Finance and also to the bank. BBVA includes this in its prospectus and assures that those who participate in the takeover bid "will have to include the profits or losses obtained in their corporate tax base or personal income tax."

When a transaction of this type is based on an exchange of shares, the tax effect is neutral, but not when the cash portion exceeds 10% of the nominal value of the shares of the entity that retains the majority of the capital, as is the case with BBVA. In this case, it is considered a sale of shares, which generates capital gains, and, subsequently, a purchase, with taxation between 19% and 30%. For legal entities (companies and other entities), it is 25%. Furthermore, capital gains are calculated according to the market price, which does not necessarily have to match the offer price; that is, it may be higher and therefore taxable on a price that has not actually been received.

The threshold

BBVA's goal is to control Sabadell with more than 50% of the capital. In fact, the transaction is subject to obtaining at least 50.01%. However, the possibility of waiving this threshold is considered. settle for a minimum of 30% and a maximum of less than 50%In this case, BBVA would have to launch a new takeover bid for 100% of the company in cash. For all these reasons, the bank chaired by Carlos Torres reserves the option, once it has obtained a portion of the capital that does not allow control of the bank, to buy Sabadell shares on the market.

The union

BBVA's ultimate goal is a merger with Banc Sabadell. Following approval from the National Commission of Markets and Competition (CNMC), the Spanish government decided to impose a merger ban and maintain Sabadell's autonomy for at least three years, which could be as long as five. This affects the project, but BBVA, which appealed this decision before the Supreme Court, downplays its effects and increases savings once there is integration up to 900 million euros, another 50 million than initially estimated, which will only be 175 million in 2027 and 235 million in 2028. In addition, Sabadell, in the midst of a takeover bid and with the massive backing of its shareholders, has agreed to the sale of its British subsidiary TSB and the distribution of an extraordinary dividend of 2.5 billion, at a rate.

The calendar

Up to five days before the end of the takeover bid period on October 7, BBVA can improve its offer, and a third party could also submit a counterbid. Sabadell's board of directors has ten days, until September 18, to release its report assessing the takeover bid. Given what both chairman Josep Oliu and CEO César González-Bueno have said so far, it is assumed that they will consider the offer, in addition to being hostile, to undervalue the Catalan bank and its potential. The result of the takeover bid will be published on October 14, and it will be known whether BBVA exceeds the 50.01% it set. The transaction will be settled between October 17 and 20, which could mean BBVA taking control or withdrawing from the operation if it does not meet its objectives.

The market

Although shareholders must look out for their own interests, that is, whether an offer is profitable or not, they are also part of the ownership of a financial institution. Their decision will determine the restructuring of a market that, if the takeover is successful, will reduce from four large banks (CaixaBank, Santander, BBVA, and Sabadell) to three. The CNMC (National Commission for the Promotion of Investments) approved the operation after accepting a series of temporary commitments from BBVA. The Spanish government considered this insufficient and, based on the "general interest," established a three-year ban on a merger of the two banks and, therefore, maintained Sabadell's autonomy during this period. The Catalan business and social sectors, as well as the Catalan government, through the Catalan Competition Authority (Acco), have warned of the risk of excessive concentration and the loss of supply, offices, and staff. BBVA admits in its takeover prospectus that when the merger occurs, staff adjustments will be made at both banks and that efforts will be made "as far as possible" to ensure these are agreed upon, with incentive layoffs, early retirements, and relocations.