The board of Banc Sabadell rejects BBVA's takeover bid.

BarcelonaThe board of directors of Banc Sabadell rejects BBVA's takeover bid. This is the conclusion of the report issued this Friday and sent to the National Securities Market Commission (CNMV). The analysis, which incorporates reports from Goldman Sachs, Morgan Stanley, and Evercore Partners International, considers that the Basque bank's offer "undervalues" the Catalan bank and recommends that shareholders avoid participating. Furthermore, it questions the future savings from the operation calculated by BBVA given the Spanish government's prohibition on a merger for at least three years, which could be as long as five. It also warns of the tax impact that the transaction could have for many small shareholders.

"The offer price does not adequately reflect the intrinsic value of Banc Sabadell shares and significantly undervalues Banc Sabadell's project and its prospects for generating returns for the sole shareholder. The board of directors considers the consideration insufficient," and far from the fundamental value of Banc Sabadell. It emphasizes that "Sabadell's fundamental valuation is between 24% and 37% above the offer value before including a control premium." The document states that BBVA's proposal values Sabadell's current share price at €3.04, while on Thursday it closed above €3.30 and market estimates place it well above that.

The report also warns shareholders that if they participate in the takeover bid they will not receive the extraordinary dividend of 50 cents per share scheduled for early next year, when the sale of the British subsidiary TSB to Banco Santander is closed. movement approved en masse by the shareholders' meeting At the beginning of August, in a meeting with analysts, Sabadell CEO César González-Bueno stated that BBVA's proposal, as currently planned, "destroys value" for the bank's shareholders.

Growth alone

In the report, the board defends its commitment to continuing alone in the future. "The board fully trusts Banc Sabadell's growth strategy and ability to meet financial objectives, and believes that the offer destroys shareholder value." It insists that "Banc Sabadell's strategy as an independent entity will generate greater value and higher dividend distributions" than with BBVA.

It also warns that, if the takeover bid is fully successful, Sabadell shareholders would own 13.6% of BBVA, instead of the 16.2% initially planned, due to adjustments to the offer made after the dividends distributed by the Catalan bank. The document notes that the Basque-based bank obtains 67% of its profits from emerging economies such as Mexico, Turkey, and South America, which are less secure than the economies where Sabadell is focused: the United Kingdom (until the sale of Santander is completed) and, above all, Spain. The Catalan bank also plans to distribute 6.3 billion to shareholders, between dividends and share buybacks, until 2027.

The governing body of the Catalan financial institution, which has opposed the bank's project chaired by Carlos Torres from the beginning, had until September 18 to make its opinion and recommendation known to its shareholders. Sabadell, which once again describes the offer as "hostile," has put it in black and white and, based on technical, economic, and financial considerations, has confirmed its rejection of the operation.

Opposition of the directors

Mexican investor and businessman David Martínez Guzmán, who is a board member of Sabadell and holds a 3.86% stake, considers the transaction a good fit given the strategy of both banks, but believes the price offered "makes it currently unrealizable." The other directors and members of the board of directors, including the chairman, Josep Oliu, and the CEO, César González-Bueno, refuse to participate in the takeover bid "today and under the current circumstances." The other board members are Pedro Fontana, Aurora Catá, Ana Colonques García-Planas, Luis Deulofeu, José García Beato, Mireia Giné Torrens, Manuel Valls, and David Vegara.

Martínez Guzmán, who suggests he does not share all the views of the rest of the board, defends banking concentration in Spain and Europe, but calls on BBVA to improve its offer to make the transaction possible. "Regarding the price, I respectfully request that BBVA reconsider and present a competitive offer, at a price that will achieve acceptance by at least 50% of Banc Sabadell shareholders. Given that I do not share some of the arguments and opinions expressed in the report, I prefer to abstain."

BBVA has reiterated that it rules out improving the offer, even though Sabadell shares now exceed it in market value. In fact, since January, Sabadell shareholders would have found it more profitable to sell directly to the market than to participate in a takeover bid. The offer consists of one new BBVA share plus 70 cents for every 5.5483 Sabadell shares. Analysts assume that, despite repeated rejections, BBVA will eventually improve the offer if it wants the takeover bid to be a success. It has up to ten business days before the acceptance period ends on October 7, instead of the five days provided for in the takeover bid law, since it is subject to US regulations, where it is also listed. Banc Sabadell also considers that BBVA will end up improving the offer "out of common sense".

BBVA has set as a condition for maintaining the takeover bid the acquisition of "control"; that is, attaining at least 50.01% of Sabadell's capital. However, it leaves the door open, in the takeover prospectus, to the possibility of exceeding this threshold and proceeding with between 30% and 50%, which would require it to launch a new takeover bid for 100% of the capital and in cash. This aspect is also reflected in the opposition report of the Banc Sabadell board.

Risk of a second takeover bid

In this second scenario, which would require a second takeover bid, "Sabadell shareholders who had accepted the current offer would be assuming the risk of the second takeover bid, which would require a capital increase of a potentially very significant amount" and which "would entail a risk of a fall in their share price, even significantly," states the document approved by the board.

Sabadell has around 200,000 shareholders who hold around 40% of the capital. The remainder is held by institutional investors, who can tip the balance. The largest shareholder is BlackRock, with 7.022%, which is also BBVA's largest shareholder. The second largest shareholder is the insurance company Zurich, with 4.70%, which also has a strategic alliance with Sabadell, as do Amundi (1.271%) and BNP Paribas (1.114%). In addition to the Mexican investor and businessman David Martínez (3.495%), who is also a director of the Catalan bank, Dimensional Fund Advisors (2.873%), UBS (2.811%), Norges Bank (2.177%), Goldman Sachs (1.491%), 3.891% (1.212%), Qube (1.021%) and JPMorgan Chase (1.009%) are also listed as shareholders with significant stakes.

The association that brings together small shareholders chaired by Jordi Casas has opposed the takeover bid from the outset, and this week recommended wait to know the decision of the board of directors to make a decision on whether or not to participate in the takeover bid.