César González-Bueno: "If the takeover fails, BBVA and Sabadell shares will rise."

BarcelonaCésar González-Bueno (Madrid, 1960) believes, with less than a week left in the acceptance period, that the takeover bid by BBVA, where he is CEO, will fall through. He is convinced that there have been conversations between the main individual shareholder and director, David Martínez Guzmán, and the Basque bank that have led him to announce his participation in the offer, and warns of the risks for shareholders of joining a takeover bid that could have a second round at a price, he says, "more advantageous."

Do you believe BBVA has committed any irregularities or illegalities during this process?

— We don't want to get into this kind of dynamic.

BBVA accuses them of making it almost impossible to sign up for the takeover bid in their...

— Perhaps they're preparing for any problems, but the fact is that the CNMV is overseeing this process, and they haven't found any irregularities.

Do you think your investor and advisor, David Martínez Guzmán, may have reached an agreement with BBVA?

— It's not up to me to say. What's clear is that there have been conversations, and the rest of the board members haven't received the full details. I can't say more. What is clear is that [David Martínez] is a different kind of shareholder, an investor. distress, which handles typically complicated transactions. I don't think this is rational behavior, because it's impossible for BBVA to reach 50%; there's widespread market consensus on this, and there should be a second takeover bid. I don't think it's rational to say it will go for the first one. It's also true that it's not an irrevocable commitment.

Did you expect it to go to the takeover bid?

— This was no surprise, given that Mr. Martínez and BBVA have been in talks for some time.

If there's a second takeover bid because BBVA is happy to hold between 30% and 49.99%, what should the price be? BBVA says it would be the same as the offer...

— The only certainty here is that the price is uncertain. The Royal Decree on Takeover Bids states this: it will be the purchase price on the last day, which technically occurs at the time of settlement; in principle, that would be October 21st.

What is the famous fair price?

— According to the law, the date of the acquisition is established. And what happens if it's lower than the previous price? Well, the CNMV has the power to correct it. And what happens if there's wild speculation and the stock soars? Well, the CNMV will correct it.

What's positive or negative about BBVA's improved offer?

— I would define it as a very poor offer because it has no premium. BBVA's value is the worst of all Spanish banks since the takeover bid began, well below European banks. And this has been because it has been dragged down by the Mexican component of its business, as banks in that country have fallen by around 15 or 16%. BBVA has risen a little over 40% if we include dividends. We're up a hundred and something, and Spanish banks are up a hundred, approximately. It's therefore a poor offer because it doesn't recognize the price and because BBVA's dividends and ability to generate capital are much weaker. Furthermore, the offer is fraught with risks. By not reaching 50%, what could happen is that there will have to be a second takeover bid, and with it, BBVA runs the risk of having to pay up to 12 billion in cash. And this is a huge uncertainty.

And what can happen?

— This is very favorable for the person participating in the second takeover bid. Those participating in the first takeover bid, if they're individuals, will pay taxes because the 50% threshold won't be reached, and therefore lose fiscal neutrality. Furthermore, the second takeover bid may be priced somewhat better. Furthermore, those who remain in the second takeover bid keep Sabadell shares, but three or four months later, at a fixed price, they can sell them. What will they do? If this share falls, and if the market generally falls, they'll trade it and keep the money, even if it's to buy more Sabadell shares, but they'll have more money. And if Sabadell shares rise, they'll stay. Then BBVA will keep its 30-something percent stake, and will have to buy more shares on the market over time, little by little, and under tremendous pressure, because there's nothing more inconvenient than having a majority when you own a banking subsidiary.

And why have they paid so badly, according to you?

— When you believe the synergies are real and that you'll achieve them, you must share them with the seller if you want to convince them. But here they've gone for very low prices. If they had raised the offer by 30 or 40%, they would have had a good chance of reaching 50%. There's unanimous agreement among investors and analysts that with this offer they won't reach 50%. And if they don't reach it, the second takeover bid is much more attractive than the first, should they go ahead with it. Second, the price of the second bid will likely be better, but no one knows. And third, the shareholder is left with an option to pursue the takeover bid later and see how the prices evolve. And here something quite dramatic could happen: in addition to BBVA's stock falling, along with the others', they'll have to put the 12 billion euros on the table at that point. And then a period of extremely high risk opens up, but for whom? For BBVA's shareholders. And whoever goes to the first takeover bid will be part of that huge risk.

Do you have any news about the level of acceptance?

— We only have one piece of data, which is that of our own minority shareholders, who represent 80% of the 40-something percent of the capital, and it's below 1%. We have no data on the rest. BBVA has shared the data that of the 2% they hold, who are their clients, and who also own some shares in Sabadell, they've grown to 25% and that they aspire to reach 50%.

BBVA says that among institutional investors, who account for more than 50% of the capital, support for the takeover bid is very strong.

— We were also told that it was certain that the transaction in the Competition Authority would proceed to Phase 1. We were also told that it was certain that the Spanish government could not worsen the terms of the transaction. And then that they would not raise the offer.

Do you think there will be a snowball effect after David Martínez?

— Now what we call the hares will emerge. Some will say, "I'll go for the takeover bid," but unless the offer is irrevocable, they have no credibility whatsoever. Besides, with what percentage? Then they will try to create what in the markets is called momentumWe need to create excitement and enthusiasm, and see if it creates a ripple effect like the one attempted with Martínez. It's not rational to go all-in on the first takeover bid. Those who want him to succeed—which isn't the majority, but there is a group within the institutional circles—want someone else to take part in the first takeover bid so they can then take part in the second, which will be better. We have a huge dilemma here, so it's very difficult to reach 30%.

Do you think there really will be a second takeover bid? In other words, how do you think BBVA will react if it doesn't reach 50%?

— I thought that with the conditions imposed by the Spanish government and the CNMC, and with the poor performance of its stock, and then with the sale of TSB, they would withdraw. And I've been wrong. What they've demonstrated is perseverance, which is another concern investors have. They wonder if these are rational decisions or emotional ones. And doubts generate concern. There's danger for BBVA's stock if they decide to go for the second takeover bid with an acceptance rate marginally above 30%. This has the market very concerned because then we could find ourselves with a need for cash contributions that goes beyond what was expected. And they should stop paying dividends.

What could happen to the shares of each if the takeover bid is unsuccessful?

— Both will rise. I think BBVA will announce massive profit distributions and share buybacks, and the market will applaud it because the uncertainty will go away. And Sabadell's shares will also rise because it's trading below the big players. We currently have a certain discount on a stock that inspires a lot of confidence, because by distributing 40% of its capitalization over the next two and a half years, no matter how badly it goes, the market will bear it. Sabadell's shares will also rise because, with the takeover bid, the most strategic investors won't be taking the plunge in such an uncertain situation. And that's why they say this offer destroys value.

If the takeover bid is successful, what would be your first decision? And if it fails?

— If it fails, I've promised to throw a party at the bank. If the takeover is successful, the only thing that reassures me is that for the bank, for its clients, for the people who work there, there will be no changes with the new ownership, and I really like that because even in the worst-case scenario, which is that long-term value destruction, shareholders would be fine because we would have a BB value.

What is the future of Sabadell's leadership?

— I don't know. Nobody knows.

Haven't you talked about it?

— No.

Are you worried about customer churn after this process?

— On the contrary. We've continued to grow, and August's figures were even better than they were already, exceeding what the market had announced in June. If, like that cyclist, we climb a mountain pass while dragging a pine branch... imagine when we pull it off. For us, the takeover bid is like that branch.

To what do you attribute BBVA's persistence in pursuing the takeover bid despite criticism and obstacles?

— The concern in the market is that there is an emotional motivation rather than a rational one. And this is a source of concern for some investors.