The Sabadell takeover bid enters a key week for price

Barcelona / MadridA decisive week has begun for BBVA's takeover bid for Banc Sabadell. After sixteen months of battle and a flurry of appearances by the top executives of both entities, the end is near. Or so it seems. In principle, next Wednesday, September 24th—Feast of the Mercè and a holiday in Barcelona—is the last day on which BBVA can improve its offer, although some place the limit at the 23rd. Be that as it may, the bank chaired by Carlos Torres has so far insisted on maintaining what it offers and He has stated on multiple occasions that he will not change it., although the premium has been negative since January—in recent days it has been marked by volatility. Beyond that date, the calendar remains packed with potential open scenarios.

The premium and the price

BBVA's offer has not changed since the bank first made it: an exchange of one BBVA share and €0.70 in cash for every 5.5483 Sabadell shares. At market close on Friday, this still represents a negative premium of 7.64%. This means that, for now, it is still more profitable for Sabadell shareholders to sell their shares on the market than to participate in the takeover bid. However, the premium has been reduced by more than half in recent weeks, during which BBVA shares have risen more than Sabadell's, although it had reached a negative premium of 15%.

Since the acceptance period began on September 8, and as stated last Friday by Sabadell CEO César González-Bueno, No client with shares has participated in the takeover bid.The executive also assured that it has not raised "any interest" among institutional shareholders: "The response is unanimous [...]: at these prices [BBVA's offer] is of no interest," he stated. However, we will have to wait until the end of the period, initially October 7, to know the results of the operation.

BBVA executives have repeatedly stated that they will not improve the offer, but they have done so verbally. That's why Sabadell has urged them to put it in writing, so as not to generate uncertainty in the market: some assume that Carlos Torres's bank will improve what it offers, while others rule it out. If it does, BBVA must not only notify Sabadell shareholders, but must also justify it to its own shareholders.

Earnings per share

One of BBVA's main arguments to convince investors that accepting its offer will be beneficial for them is that, according to the Basque bank's calculations, a combined entity would represent a 25% improvement in earnings per share (EPS). However, Sabadell has dedicated last week's conference calls to refuting this. "This is based on a biased approach that ignores the benefit that the shareholder will receive on account of TSB; in reality, it is economically dilutive," said González-Bueno. In fact, the calculations presented by Sabadell's CFO, Sergio Palavecino, showed a yield of -0.1%, after taking into account TSB and other costs derived from the merger.

It is worth remembering that in August, the Catalan bank's shareholders approved the sale of its British subsidiary, TSB, to Banco Santander, as well as the subsequent distribution of extraordinary dividends on account of that €2.5 billion transaction. A dividend, however, that will only be received by Sabadell shareholders who hold their shares and do not participate in the takeover bid, as it will be distributed in the spring of 2026, when the sale of TSB has been closed and the takeover bid is finalized.

In response, BBVA has reminded shareholders that, if they want cash, they do not need to wait for the TSB dividends; they can participate in the takeover bid and sell the shares of the blue-chip bank they obtain on the market. There is also the issue of taxation: accepting the takeover bid "means forgoing the €2.5 billion dividend from the sale of TSB and paying taxes on an amount that could exceed the cash received," recalled Sabadell Chairman Josep Oliu. This is because the takeover bid for Sabadell, which currently involves a share purchase and sale, is not tax-neutral, so a capital gain corresponding to the entire value must be paid. However, in the case of a merger, there is tax neutrality, because it involves an exchange of shares and no cash is involved.

Synergies

A key factor in the possibility of improving the offer is the condition imposed by the Spanish government that both banks maintain their independence for at least three years (or possibly as long as five). This complicates the calculation of the synergies (cost savings) that could arise from the merger.

According to BBVA, the synergies will amount to €900 million in one year, but they will arrive four years after the merger, that is, once the three-year security measure imposed by Pedro Sánchez's government ends (during this period, BBVA estimates synergies of €235 million). The €900 million would emerge thanks to an express merger marked by technological integration, workforce cuts, and branch closures. Sabadell has also refuted this: "It assumes that the synergies will be realized instantly from the moment the merger is carried out. It's very unrealistic," González-Bueno asserted.

Calendar

If BBVA does not improve the offer and the process continues, the other key date will be October 3. Until then, BBVA can extend the acceptance period as many times as it wishes, as long as it does not exceed the maximum limit of 70 calendar days (the current acceptance period is 30 days). The bank has up to three calendar days before the end of the current period (October 7) to decide whether or not to extend the timeframe for Sabadell shareholders to decide to participate in the takeover bid.

If it decides to extend the acceptance period, the takeover bid would be extended until November. During that time, BBVA would again have the option to improve the offer. If the current period is not extended, the takeover bid will close on October 7.

Scenarios

Depending on the outcome, various scenarios arise. The ideal scenario for BBVA is to reach the minimum acceptance rate for the initial offer (50.1% of the shares, or 49.3% of the shares if Sabadell's treasury stock is not included). However, the bank has also opened the door to continuing with the integration process between the two banks even if that threshold is not reached. To gain control, it would only need to acquire at least 30% of Sabadell's share capital.

But if this happens, BBVA is required by law to launch another takeover bid for 100% of Sabadell, as it has now done, and submit a new offer. However, this time the offer must be in cash. Furthermore, the price cannot be just any price, but must be a "fair price," and the National Securities Market Commission (CNMV) will be responsible for ensuring that it has been calculated correctly.

Two different banks

Analysts agree that it is "complicated" to compare the two banks, given that they operate in very different markets and, therefore, "it is like comparing apples and pears." On the one hand, Sabadell has always prided itself on being a "local" bank, specialized in the Spanish market—and even more so now that it will no longer have the TSB—and focused on "homegrown" SMEs. In fact, 97% of its profits come from Spain and the United Kingdom, and the remaining 3% from Mexico. In contrast, BBVA is an international bank, with a significant presence in emerging markets such as Mexico, where it concentrates almost half of its profits, and Turkey, which accounts for 5% of its earnings, as well as South America (8%). Spain accounts for 35% of its business. Given this, Sabadell asserts that "BBVA faces uncertainties" that the Catalan bank does not, because the profits of the Basque-based bank are highly exposed to the depreciation of the currencies of the emerging markets in which it operates.