The Competition Authority unanimously authorizes BBVA's takeover bid for Sabadell

MadridWhite smoke billows from 47 Calle Alcalá in Madrid. The National Commission on Markets and Competition (CNMC) has authorized, with certain commitments, BBVA's takeover bid for Banc Sabadell, leaving the Spanish government in the hands of a transaction that could lead to the demise of the state's fourth-largest bank. After a meeting frustrated by Monday's power outage, the five members of the CNMC's Competition Chamber met again on Wednesday to reach a final verdict on the transaction. In a marathon session, the body chaired by Cani Fernández managed to reach a unanimous position on the transaction, as reported by the body Wednesday night.

In general terms, the Competition Authority concludes that despite detecting "risks" affecting retail banking (personal customers), SMEs, the self-employed, and payment methods, the commitments presented by BBVA "have allowed the risks to be resolved and the operation authorized." Throughout its analysis, the CNMC has detected risks such as a "worsening of commercial conditions for individuals, SMEs, and the self-employed," but also a "risk of reducing credit to SMEs." In fact, the agency has even observed that "96 municipalities have been identified in which, if the operation is successful, the combined market share would exceed 50% [...]. As a result, a duopoly situation is generated in 48 of these municipalities," concludes the Competition Authority.

Three-year commitments, renewable

In response to these risks, the Competition Authority is demanding that BBVA meet a series of conditions, including those affecting vulnerable customers (BBVA must create a special account with favorable terms) and branches (the Competition Authority prohibits it from leaving some of the most affected municipalities). But the commitments related to SMEs and the self-employed stand out above all. Thus, in some "problematic" postal codes, BBVA must maintain commercial conditions, while it has committed to maintaining working capital lines and the volume of credit to SMEs in specific cases: for example, when an SME receives 85% of its credit volume from BBVA or Sabadell (or jointly).

Most of the commitments will have a duration of three years, although in the case of credit to SMEs, they can be extended for two more years, while the conditions for access to ATMs are extendable for an additional eighteen months. "The CNMC will oversee compliance, and BBVA must report [on the process] within the agreed period," the Competition Authority's statement details. "The commitments we made to the CNMC promote financial inclusion, territorial cohesion, and credit for SMEs and the self-employed, especially in regions like Catalonia," said BBVA chairman Carlos Torres on Wednesday night.

BBVA optimistic; Sabadell maintains its opposition.

The bank chaired by Carlos Torres has negotiated the remedies or measures that the Competition Authority demands to cushion the impact of the transaction on customers and companies, particularly SMEs and the self-employed, which are Sabadell's core business, but also on regions such as Catalonia and the Valencian Community. BBVA's view contrasts with that of Sabadell, which in its initial reaction highlighted the "risk to competition" that the CNMC has detected during the process. In a statement, the bank reaffirmed its "opposition" to the agency's analysis because "it is not appropriate for analyzing the merger of both businesses." The Valle del Cauca-based bank emphasizes that, despite the Competition Authority's ruling, shareholders will have the final say. Sabadell insists that the transaction "poses a threat to effective competition in certain areas of the retail banking and payment services market." It also emphasizes that, as of today, BBVA's offer represents a negative premium for Sabadell shareholders of almost 7%. That is to say, those who participated in the takeover bid, with today's closing prices (Wednesday) for Banco Sabadell and BBVA shares, would lose 7%".

Precisely, the first to react to the CNMC's decision was Pimec, the Catalan employers' association for small and medium-sized businesses. "We disagree [with Competition]", the business organisation stated in a press release. Likewise, the president of the Generalitat, Salvador Illa, said that "they will rigorously analyse the report and all the data and analysis in order to act coherently, defending the interests of Catalonia above all else". Isla via the social network X.

Decision in phase 2

This Wednesday's decision comes in phase 2 after the entity was unclear about the operation last November. This phase has allowed the CNMC to conduct a more in-depth study of a transaction that could also lead to the demise of Catalonia's fourth largest sales company. Although during this period, participation by other interested parties was permitted, from unions to employers' associations beyond the two affected financial institutions and the rest of the banking sector, the CNMC rejected the vast majority of allegations. This has generated discontent among employers' associations, chambers of commerce, and unions, but also at Banc Sabadell, which has been highly critical of the analysis conducted by the Competition Authority.

Be that as it may, almost a year after the analysis initiated by the Competition Authority, the transaction now goes to the Minister of Economy. Carlos Cuerpo must decide within fifteen business days whether to submit the opinion to the Council of Ministers, which would automatically initiate Phase 3. Sources from the Ministry of Economy indicated Wednesday night that "the CNMC's opinion will be analyzed rigorously and in detail." "Until all the information is available and an analysis is conducted, we must exercise maximum caution," the same sources indicated.

If Phase 3 is initiated, the Spanish government, which has publicly expressed its opposition to the transaction proposed by BBVA, could demand greater commitments from the Bilbao-based bank. However, these commitments must be linked to issues of general interest, and not to competition issues, as established by law. In this regard, Pimec has once again asked the Spanish government to "take advantage" of this third phase to "defend the general interest with more measures."

Thus, although BBVA has cleared the Competition Authority, the fact that the central government could approve much tougher commitments still leaves it with little relief. In fact, the Bilbao-based bank has always acknowledged that if these steps were to devalue the transaction—that is, reduce the synergies—it could back down. "I think it wouldn't do [Pedro Sánchez's government] any good to have one less bank," said Sabadell chairman Josep Oliu in an interview with ARA. During this time, Sabadell has also played its cards: after leaving Catalonia due to the Process, this January it decided to return its headquarters to Sabadell. A gesture that was read as being made to please Salvador Illa's government and, consequently, that of Pedro Sánchez.

Once the Spanish government has made its decision, the National Securities Market Commission (CNMV) must approve the takeover bid prospectus and open the acceptance period, at which point Banco Sabadell shareholders can vote on whether or not to accept BBVA's offer. If 50.1% or more of the Valles-based bank's shareholders endorse the transaction and, therefore, sell the shares, BBVA and Sabadell will be integrated, but not merged. At that point, the Spanish government will re-enter the fray, having the final say on approving the merger.