The great banking taboo that has taken hold of the takeover bid for Sabadell

Madrid"If there's one thing that's important to avoid in the banking sector, it's uncertainty." This reflection comes from a professor at one of Spain's most renowned business schools, who already predicts that BBVA's hostile takeover bid for Banco Sabadell will be a "case study" in classrooms. What has long been a taboo for banks has dominated this merger operation from the moment it was launched, sixteen months ago, and although its outcome could arrive in two weeks, questions remain. In fact, BBVA's latest steps push the takeover bid into a difficult situation. However, there have already been moves that have fueled uncertainty. Many of them, moreover, have been marked by contradictions.

"Supply is supply"

One of the latest uncertainties has come from the offer launched by BBVA. The Basque bank's executives have always defended the terms of the hostile takeover bid launched by Sabadell and have remained steadfast: Carlos Torres and Onur Genç, president and CEO, had insisted they would not revise the price. In the end, they raised it by 10%. With this increase, they hope to convince shareholders, especially institutional ones. "The support of [institutional] shareholders is widespread," Torres stated this Friday in an interview with Efe. He also said that although the data is "very preliminary," there were already minority shareholders who were interested in the takeover bid. Sabadell, on the other hand, said no.

"It's a signal to institutional investors, not so much to minority investors," says a source familiar with the sector, who believes it's a "signal" of the "clear" need to rebalance the balance sheet, where emerging countries now have a lot of weight.

The labyrinth of a second takeover bid

Whether or not the increase will convince Sabadell investors will not be known until the week of October 13-17, when the National Securities Market Commission (CNMV) will announce the results of the vote. Initially, BBVA had conditioned the offer on obtaining 50.01% of Sabadell's share capital. In fact, Torres believes this will be the case: "I am absolutely convinced," he told Efe.. If it didn't reach that threshold, BBVA would back out.

Recently, however, it decided to change its mind and opened the door to completing the process despite only being left with between 30% and 50% of the capital. The bank has recalled that it has the power to waive its minimum acceptance condition. In any case, it maintains that it "has no intention of doing so." If this scenario were to occur and it decided to fight for more capital, it would be forced to launch a second takeover bid, an option that the BBVA chairman also doesn't consider: "A second takeover bid is not on the table," he told Efe., and assured that there will be no improvement over the current offer either. The market views the second takeover bid scenario as one of the most "complicated" for Torres, who, among other things, would have to justify a new outlay to his shareholders.

From friendship to hostility

But the first mistake that led to uncertainty, according to a source familiar with the sector, was the shift from a friendly offer to a hostile takeover, especially given the lack of precedents in the sector. "Everything would have been less costly if, at the time the initial conversations were leaked, it had been communicated that they wanted to maintain open negotiations," he reflects. Even taking into account Sabadell's rejection. The same source points out that, in the eyes of society, having more or fewer banks is not a trivial debate. "Politicians only support banking consolidation if there's a crisis," he adds.

A timeline that lengthens

Initially, BBVA proposed a process similar to a friendly takeover bid, without too many complications, and expected to be completed no later than early 2025. Sixteen months later, the financial chess game remains open. One of the factors that has lengthened the schedule is the Competition Authority's decision to open Phase 2 of the takeover bid analysis. BBVA estimated that the agency's analysis would last between five and six months and would be resolved in Phase 1. "I'm convinced," said BBVA's CEO. In contrast, Banc Sabadell assumed, and pressed, that it would go further. After a difficult negotiation over the commitments and conditions, the Competition Authority issued its ruling last April.

Cost savings?

This phase 2 added another uncertainty to the operation: the Spanish government's pronouncement on public interest grounds. Again, a scenario with hardly any precedent. BBVA did everything it could to dispel the doubts of Pedro Sánchez's administration, and Torres was fully convinced that the possibility of it opposing the merger with Sabadell was "minimal." "I'm not worried," he said this summer. The government ended up imposing conditions that oblige BBVA to refrain from merging with Sabadell for three years (which can be extended to five). This has directly impacted synergies or cost savings, although BBVA initially dismissed the issue. The bank has filed an appeal with the Supreme Court against the government's decision, which has already been admitted for processing, according to legal sources.

The purchase of a different bank

But the about-faces in the takeover bid haven't come solely from BBVA. Sabadell has decided to divest itself of TSB, although in recent years it had ceased to be a drag on the business and had been a significant source of revenue. Now, the Vallecas-based bank is not only smaller, but also has all the clout in a single market: Spain.