Carlos Torres takes a risk in the great paradox of the takeover bid

BarcelonaWhen BBVA launched its takeover bid for Banc Sabadell, the financial sector unanimously expressed: "Poor Carlos Torres, if he fails the second time." It was the spring of 2024, and the Catalan power houses were remembering the failed attempt by the BBVA chairman in 2020. At that time, in the midst of the Covid crisis, the Catalan bank had hit rock bottom, with the share price at 26 cents, and the Biscayan bank wanted to buy it.

After months of negotiations, which went so far that the due diligence of the Catalan bank, everything fell apart. The financial sources consulted indicate that one problem was the price (BBVA was offering around 2.2 billion, when Josep Oliu, president of the Catalan bank, was asking for around 2.5 billion; the Catalan bank is currently valued at 13.9 billion) and, secondly, there was an insurmountable mistrust between the presidents of the two, and BBVA concealed the sale of its American subsidiary, something transcendental in the valuation of the bank and in the exchange rate of the shares.

It is because of this first unsuccessful attempt that many believed that if Torres failed in the second, his continuity at the bank would be seriously affected. ARA, in fact, asked Torres about this point in a press conference, and the Madrid financier replied that he does not fear for his continuity and that he presented the takeover bid for the benefit of the shareholders. Months later, he reiterated his message: "I have no intention of resigning," he said in January, when asked about the possibility that the hostile operation against Sabadell might not succeed.

Time has passed, and the fact is that last week, at the general shareholders' meeting, Carlos Torres saw his management confirmed and his continuity at the bank approved for three more years. His position, with contract in hand, is not in jeopardy.

But there's always a catch.

Financial sources consulted by this newspaper explain that, de factoThe main threat to Torres's continued presence, who earned €8.3 million last year, would, curiously, not be a potential defeat in the takeover bid, but a success.

These sources explain that BBVA shareholders view the attempted purchase of Banc Sabadell positively and as an attempt to improve the bank. If the transaction fails, Torres would be judged as a well-intentioned attempt. How could the takeover bid be undone? There would be two scenarios: on the one hand, the vote is reached and the Banc Sabadell shareholders who accept the takeover fail to reach 50% because they find the offer insufficient. The second option would involve measures against the transaction adopted by either the central government or the Competition Authority. This latter scenario seems unlikely—it is assumed that the CNMC will impose commitments easily assumed by the Biscayan bank, contrary to what Sabadell had demanded.

The government's challenge is indeed difficult for BBVA, because Pedro Sánchez's administration has been harsh and explicit since May of last year in its rejection of a transaction that would leave only three major banks in Spain. The decision to prohibit the merger of both entities could come from the cabinet, which would mean Sabadell would change hands, but in the eyes of customers, two distinct financial brands would continue to exist. A veteran banker who asks to remain anonymous explains that "BBVA shareholders would understand if, in such a case, the takeover bid were withdrawn without any reproach to the leadership."

And if the transaction goes ahead? Paradoxically, this is where Torres begins to tread on shaky ground. It may be the case that BBVA improves the current offer, when the share exchange premium has been negative for weeks, meaning that Sabadell shareholders would lose value if they exchanged shares. If he does, there could be a boomerang effect: the market could react negatively and bring down the shares of the Biscayan bank itself, which has reiterated dozens of times that it would not improve its offer because it has no room to do so. And if BBVA's shares fall, Torres's performance could be called into question.

It could also happen that the takeover bid is successful in a scenario involving non-merged banks, a scenario that Torres has indicated as possible on several occasions. In this case, which could be imposed by the government, BBVA would not be able to benefit from the multi-million-dollar synergies that accompany the usual staff reductions in these processes, so the entire operation would lose part of its economic meaning. These are the dreaded "execution risks" of a transaction to which Carlos Torres has entrusted BBVA's growth, and which even jeopardize his continued presence at the bank.