The takeover bid for Banc Sabadell enters the shareholders' arena

MadridBBVA's hostile takeover bid for Banc Sabadell is finally in place. in the shareholders' field, although it has also just entered the judicial arena after the BBVA has decided to appeal to the Supreme Court the conditions imposed by the Spanish government in the takeover bid. In any case, the first mover will be the shareholders, because the journey that has begun in the administrative litigation chamber of the High Court could drag on for months. The spotlight, therefore, is on the just over 200,000 shareholders among whom Sabadell's share capital is distributed: after the summer break, they will have to decide whether or not to accept BBVA's acquisition of Sabadell.

Once BBVA has decided to go all the way Despite various setbacks (from the Spanish government's conditions to the sale by the Vallecas-based bank of its British subsidiary TSB and the distribution of an extraordinary dividend), it's now the turn of the National Securities Market Commission (CNMV). The body expects to approve the takeover bid prospectus in early September. Once this occurs, the starting signal will be given for the acceptance period: the period during which Sabadell shareholders will have to vote on whether to accept the takeover bid. This period can last 30 or 70 days—BBVA must choose—so the vote could extend beyond October, although BBVA is leaning toward a quick process.

Tight vote

From the outset, it should be noted that the bank chaired by Carlos Torres has set a minimum acceptance percentage for the takeover bid to be successful. This means that Sabadell shareholders must sell a minimum number of shares. Specifically, BBVA set this minimum percentage at 50.1% of the shares (49.3% of the shares if Sabadell's treasury stock is not included).

Sabadell's shares, however, are split almost equally between minority shareholders (individuals) and institutional shareholders (for example, investment funds). The reason it is said to be a close vote is because minority shareholders do not view the takeover bid favorably, or at least that is what the Association of Minority Shareholders of Banc Sabadell, the bank chaired by Jordi Casas, has expressed.

Many of these individual shareholders are not only long-standing shareholders—they have inherited shares from family members—but are also clients. The Minority Shareholders Association has indicated that this adds an emotional component to a transaction that, moreover, they do not see as economically attractive. "BBVA has snubbed us," Casas stated in one of his public appearances. In this sense, Banc Sabadell's directors have always been convinced that these small shareholders will not sell their shares, or at least not with an offer like the current one. "There is a very clear and powerful majority [of minority shareholders] who have decided they will not sell," stated Sabadell CEO César González-Bueno in an interview with ARA.

BBVA is offering Sabadell shareholders a share swap: for every 5.34 Banc Sabadell shares, it offers one BBVA share and a payment of 0.7 euros. Since the offer was submitted—15 months have passed—the shares of both banks have fluctuated. Today, Sabadell is trading above what BBVA is offering, leaving the offer premium negative. This Friday, Sabadell closed with a modest rise in the share price, leaving it at 3.44 euros. The same occurred in the case of BBVA, which closed the day at 16.48 euros per share.

Therefore, the market does not rule out the possibility that BBVA will improve its offer to convince these minority shareholders, although the bank has closed this door. Should it decide to make an extra effort to acquire Sabadell (it can do so up to five days before the end of the acceptance period), BBVA will have to justify this to its own shareholders, especially considering that the Spanish government's conditions have affected the synergies (cost savings) of the operation and that the sale of the British subsidiary TSB.

However, some, taking this into account, see the legal move as a goldmine to support an improved offer: "By appealing to the Supreme Court, they create an option, which is that they will be ruled in their favor and be able to merge before the three years are up, which has value for their shareholders [the sources of those who are fighting," "them, BBVA]." financial in the ARA.

What do the institutional investors say?

The hardest thing to know is what institutional shareholders will do, Many of them investment funds with a presence in both banks, as is the case of BlackRockBBVA has expressed confidence that investors will accept the offer, something Sabadell questions. "[The probability of BBVA's takeover bid being successful] is very low," González-Bueno predicted last July, during the presentation of the strategic plan.

As reported by the CNMV, Sabadell's institutional shareholders include BlackRock (6.86% of the share capital); the Swiss insurance company Zurich, which in recent months has increased its stake to 4.70% of the share capital; and businessman David Martínez Guzmán (3.49%). Other shareholders include Dimensional Fund, Goldman Sachs, UBS, Norges Bank, and JPMorgan. But not all institutional investors are motivated by the same interests. For example, there are funds that buy and sell based on whether they obtain the highest possible return, but they do not consider whether the transaction is good or bad because they lack a long-term focus. Others vote based on how likely they think the takeover bid is to go ahead.

What happens if the 50.1% vote isn't reached?

If BBVA doesn't reach the minimum percentage set (50.1% of the shares), it could continue with its intention to acquire Banc Sabadell, but the path is complicated. Carlos Torres' bank wants to control Sabadell, and that will only be possible if it acquires at least 30% of Sabadell's share capital. It could therefore lower the minimum acceptance percentage to 30%. However, if this occurs, BBVA is required by law to launch another takeover bid for 100% of Sabadell's share capital, as it has now done, and submit a new offer, this time in cash.