BBVA’s Hostile Bid for Sabadell Collides With Spanish Politics

(Bloomberg) -- Spain’s dramatic intervention to oppose Banco Bilbao Vizcaya Argentaria SA’s hostile bid for Catalan lender Banco de Sabadell SA is blurring the lines between politics and business mere days before a regional election in Catalonia.

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The government has the final say on the deal and is against the “form and substance” of how Spain’s second-largest bank, located in the Basque part of northern Spain, intends to absorb its smaller rival, Economy Minister Carlos Cuerpo said in an interview with state television broadcaster TVE on Thursday.

He said the government objects on the grounds that it would be bad for competition and add uncertainty and volatility to Spain’s financial system. The comments came shortly after BBVA took its €11.5 billion ($12.4 billion) bid directly to Sabadell shareholders after having an initial proposal rebuffed by that lender’s board earlier this week.

Read More: BBVA Makes $12 Billion Hostile Bid for Sabadell After Snub (2)

Even before the Spanish government’s intervention, analysts had noted that the offer, which would create a new Spanish banking giant with a joint balance sheet of more than €1 trillion in assets, may struggle to sway shareholders. The rebuke from the government lengthens those odds.

By inserting itself so overtly and controversially at the center of one of Europe’s biggest banking takeover deals in years, the government will inevitably invite criticism about how it’s putting a thumb on the scale and weighing in on the grounds of domestic politics.

The political survival of Prime Minister Pedro Sanchez hinges on support for his Socialist party from two pro-independence parties and he will be tested this weekend in regional elections that will mark the return of Carles Puigdemont, the Catalan separatist who led a failed secession and was granted an amnesty by Sanchez.

Sabadell is a Catalan bank and named after a city near Barcelona. It moved its fiscal domicile to the neighboring region of Valencia in 2017 after hundreds of companies fled Catalonia at the height of a failed independence push.

The Socialists are poised to come in first but are expected to fall short of a majority — with the two pro-independence parties in second and third place. The optics will focus on how Sanchez is seeking to curry favor with Catalan voters by rushing to protect a local and vulnerable lender. That is not lost on Puigdemont.

“For some time, there’s been a strategy to kill the Catalan banking industry, and that harms both the customers and the region,” Puigdemont said in a post on X on Thursday. The hostile offer “must be responded to with full force, with all the law and with all reason.”

Complicating matters further, BBVA’s fiscal domicile is in the northern Basque Country, where it is one of the biggest tax payers, meaning it also has important relations with the local, nationalist Basque government.

Still, BBVA’s Chairman Carlos Torres offered an optimistic interpretation to the government’s intervention.

“We have elections coming up on Sunday and in that sense it’s a politically charged environment,” he told analysts in a call Thursday morning. “But I am confident that the government will appreciate the value of the transaction.”

Torres also has work to do to persuade both sets of shareholders of the merits of a deal that Sabadell’s board has said “significantly undervalues the potential of Banco Sabadell and its standalone growth prospects.”

The offer, which proposes an exchange ratio of one newly issued BBVA share for every 4.83 Sabadell shares, values Sabadell at a price-to-tangible-book-value of close to 1, according to Bloomberg Intelligence. Suitors offered a median 0.55 times book value in takeovers of European lenders announced over the past three years, according to data compiled by Bloomberg.

While Sabadell shares rose about 3% to €1.86 euros a share in Madrid on Thursday that’s still below the price of around €2 a share implied by the offer. BBVA shares were down around 6%.

What Bloomberg Intelligence Says

BBVA’s new takeover offer for Sabadell hasn’t been improved from the rejected one already sent to the prey’s board, so is likely to be the last attempt, if it’s also unsuccessful. The final consideration is subject to the share-price volatility of both BBVA and Sabadell, with our calculations showing it represents a premium of less than 10% to Sabadell’s current share price, valuing the target at a price-to-tangible-book-value of close to 1.

Lento Tang, BI analyst

--With assistance from Gina Turner.

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