The Spanish government defends its legislation on bank mergers before Brussels. part of which has been used in the context of BBVA's hostile takeover bid for Banc SabadellThis Wednesday, the Ministry of Economy sent a letter to the European Commission defending Spanish regulations, as confirmed to ARA by ministry sources. With this letter, Pedro Sánchez's government responds to the infringement proceedings opened by Brussels in Spain this summer, precisely in the midst of the hostile takeover bid. In fact, Spain had until this October to respond.

"The offer is the offer," BBVA CEO Onur Genç had repeatedly insisted when asked about the possibility of improving What they offer to Banc Sabadell shareholders to accept the takeover bid. However, these words, as of Monday, have remained a dead letter.

BBVA's hostile takeover bid for Sabadell has overshadowed the debate surrounding the infringement proceedings opened by Brussels regarding the legislation the Spanish government used to intervene in this transaction. Specifically, Pedro Sánchez's government used the 2007 Competition Law to impose additional conditions beyond those of the Competition Act, incorporating requirements into the takeover bid for reasons of public interest. The consequence of these conditions is that for at least three years, BBVA and Sabadell will have to operate "autonomously." That is, if the takeover bid is successful—it requires at least the shareholders to sell 50.01% of Sabadell's shares—they will have to operate as if the latter bank were a subsidiary of the former. But the truth is that Brussels goes further and also points to a rule that, so far, the Spanish government has not had to use in BBVA's Sabadell transaction. This is the law on the regulation, supervision, and solvency of credit institutions, approved in 2014 and implemented in 2015 under the government of Mariano Rajoy (PP).

BBVA has submitted the updated prospectus for the takeover bid for Banc Sabadell to the National Securities Market Commission (CNMV), sources familiar with the process confirmed to ARA. The Basque bank maintains its offer despite the sale of Sabadell's British subsidiary, TSB, to Santander, announced last week. The text incorporates both the limitations agreed by the Spanish government in the transaction, the impossibility of carrying out a merger for three years, which could be as long as five, and the sale of Sabadell's British subsidiary.

Kutxabank's shareholders' meeting has ratified the takeover of Cajasur, decided upon last April. It also approved the incorporation of María José Armendáriz and Elena Nabal as independent members of the financial group's board of directors.

Five years ago, the financial sector in the State suffered an earthquake: the announcement of the CaixaBank-Bankia banking mergerAt that time, the Vice President of the European Central Bank, Luis de Guindos, was already advocating that "banks should begin a new merger process quickly and urgently," while the then Governor of the Bank of Spain, Pablo Hernández de Cos, asserted that in Spain "there was room for mergers." The merger gave rise to the first Spanish bank and came about after an agreement was reached between the central government—the majority shareholder in Bankia with 62% of the share capital—and the blue star bank—La Caixa, through its investment arm, Criteria, was the largest shareholder in CaixaBank.

If it goes ahead, BBVA's takeover of Banco Sabadell will not only be the largest banking merger in Spain after CaixaBank's takeover of Bankia in 2021, but also the first hostile takeover of the century in a sector where mergers are usually negotiated and supported by the government and the Bank of Spain. The last precedent for a hostile takeover was that of the former Banco de Bilbao (now BBVA) in Banesto in 1987, which failed.

Once the Spanish government has established its conditions for a possible merger of BBVA and Sabadell, which it freezes for a minimum of three years, it's now the turn of the Catalan financial institution's shareholders. This will happen once the Basque-based bank decides whether to maintain the offer or withdraw it. The fact is that, due to its nature—a combination of share exchange and cash payment—many of those who decide to opt in, especially small shareholders, could end up paying more income tax (IRPF) when they file their tax return next year than the cash portion they receive.

BBVA's takeover bid still has a long way to go. "The dance hasn't even begun yet," said the chairman of Banc Sabadell during a meeting with shareholders. Along with his CEO, César González-Bueno, during a meeting that lasted more than an hour, Oliu expressed his conviction that the bank chaired by Carlos Torres Vila, despite having repeatedly denied it, will improve its offer for Sabadell. The operation is now on the table of the Spanish government, which must decide whether to introduce any obstacles related to the general interest, as the part related to free competition was already endorsed by the National Commission of Markets and Competition (CNMC) on April 30.

Banc Sabadell is considering offers to sell its British subsidiary TSB, as has progressed Financial Times and sources from the entity chaired by Josep Oliu have confirmed. The Vallesan entity is working with advisors to study the offers and its possible sale, which occurs in the midst of BBVA's takeover bid. The operation is on the table of the Spanish government, which must decide whether to impose obstacles related to the general interest or not. The free competition aspect has already been endorsed by the National Commission of Markets and Competition (CNMC) on April 30 past, despite the business and social outcry, especially in Catalonia, against the takeover bid.

Spain is one of the major eurozone states with the highest banking concentration. The top five financial institutions in the Spanish market account for a 69.5% share, ahead of France (45.3%), Germany (33.4%), and Italy (48.7%), according to European Central Bank (ECB) data for 2023, the latest available. These concentration levels exclude the effects of potential integration resulting from BBVA's takeover bid for Banc Sabadell, which is currently on the Cabinet table.

Banco Sabadell CEO César González-Bueno stated that BBVA's takeover bid reached a maximum negative premium of 7.5%. This means that shareholders would be better off selling their shares now on the market than accepting the Basque bank's offer. The deal will not go through "because society doesn't want it," he added.

It's striking how quickly the European Commission, with a majority of the European People's Party (EPP), has issued warnings to the Spanish government following its decision to rule on the possible merger of BBVA and Sabadell based on the general interest, as provided for in state regulations. And before knowing what the decision will be. Does it want to exert influence? The same hasn't been seen when the conservative Portuguese government rejected the purchase of Novo Banco by a Spanish bank, CaixaBank; or when the right-wing Italian government imposed conditions on Unicredit's takeover bid for BPM.

The Catalan financial system is experiencing a new phase that could lead to the loss of the only major bank with its headquarters, Sabadell, which was reclaimed last January after more than seven years in Alicante due to the Process and the referendum. Now, the takeover bid (OPA) for BBVA and the planned subsequent merger are in the hands of the Spanish government. After analyzing the the responses to the unprecedented public consultation called by the executive, The Ministry of Economy has until next Tuesday, the 27th, to submit the file to the Council of Ministers. The Council must then decide whether to object to the merger based on "general interest" criteria, since the free competition criteria were resolved by the National Commission on Markets and Competition (CNMC) in a unanimous ruling on April 30th.

The Círculo de Economía (Economic Circle) highlights territorial balance as the main impact of the potential merger being promoted by BBVA with Banc Sabadell. This is one of the "general interest" arguments incorporated by this organization into the public consultation launched by the central government, presented this Tuesday by the Círculo's president, Jaume Guardiola, and its general director, Miquel Nadal. The entity believes that the only options that the National Commission on Markets and Competition (CNMC) should have approved to preserve free competition were either to impose the sale of part of the business in the event of a potential merger or, simply, to prevent it.

If there is a determining element in BBVA's offer (takeover bid) for Sabadell launched a year ago, this is the price. And analysts and brokerage firms, who have revised the price the Catalan bank should have based on its results, prospects, and shareholder remuneration, place it at up to more than 33% above the offer from the Basque financial institution, up to 3.5 euros per share. This is more than Wednesday's price and nearly 13% more than the offer price. Torres is referring to the letter he sent to his staff. to the opinion of the National Competition Commission (CNMC) of April 30, which set conditions for the possible merger, which BBVA assumed. But it ultimately unanimously endorsed the operation. It is now pending. the public consultation which, in an unprecedented move due to a business merger, was launched by the central government and which will last until this Friday.

A global bank, BBVA, with significant subsidiaries in Mexico and Turkey, wants to take control of a deeply rooted bank, Banc Sabadell. These are two very different business models. And a year after the takeover bid (OPA), which was described by the Catalan bank's board of directors as hostile, uncertainties remain. The market is betting that the group chaired by Carlos Torres Vila will ultimately improve the offer, even though he has publicly rejected it. In fact, he can't do anything else, since it's unlikely he'll announce it in advance.

Pimec is leading the opposition to BBVA's takeover bid for Banc Sabadell through a manifesto it claims to have the support of more than 30,000 companies. The document, which has been endorsed by various trades and associations, defends "competition in the banking market."

Customers aren't usually fans of a bank. But Banc Sabadell's first shareholders' meeting in the city where it was founded 144 years ago, after the company's headquarters were returned, was an exception, with the shadow of a BBVA takeover bid looming. This was already reflected in the first and second waves of an ISPD/Netquest survey for ARA: 4 out of 10 customers would leave the bank if the merger were successful.

In May, it will be a year since BBVA launched a takeover bid for Banc Sabadell, which the Catalan bank's board described as hostile. It is the first such operation since the former Banco de Bilbao (now part of BBVA) attempted to take control of Banesto (now part of Santander) in 1987. and in Alicante in 2017.