BBVA's takeover bid for Sabadell adds more obstacles, although it remains open.
This week, the Catalan Parliament once again approved a motion against the takeover bid launched by BBVA for Sabadell. The second motion calls on Pedro Sánchez's government to veto it. Unlike the previous motion, in this case, President Salvador Illa's Socialists did not support the motion and abstained, arguing that the Spanish government cannot do such a thing. However, the motion, presented by ERC and supported by Junts y Comuns, CUP, and Aliança Catalana, sought to clarify something that the nationalists, especially Carles Puigdemont, had already expressed the same day that Economy Minister Carlos Cuerpo announced his conditions for the operation: they were not sufficient to halt the takeover, which was what they had demanded of the government. And indeed, the takeover bid is still ongoing, although at the same time it is also true that along the way it has accumulated obstacles and setbacks. Political and economic.
Among the former, the coldness of Catalan public opinion toward the takeover bid, expressed by all political parties. Sabadell, a bank created in the last quarter of the 19th century by the Valles textile bourgeoisie, created a limited local example of popular capitalism for the middle classes, who became its main shareholders.
Unlike La Caixa, founded at the beginning of the 20th century by Barcelona's upper bourgeoisie, and not being a joint-stock company, non-profit, or without shareholders, it created a different connection with society through its clientele and a widespread sense of belonging as it was not private property.
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Sabadell now has a base of around 200,000 small shareholders, whom its chairman, Josep Oliu, is trying to mobilize. The Catalan identity of the bank is epitomized by them; they represent almost half of the capital and the restored headquarters in Vallecas, once it has failed to establish a core of large local shareholders capable of maintaining its independence.
The operation of Carlos Torres' bank has encountered political and also economic problems.That's why public opinion is now decisive in the takeover bid. Although many of these small shareholders lost a large part of their historic wealth, held in Sabadell shares, with the collapse of the bank's stock market value following the 2008 financial crisis, they now seem to have forgotten that past and are taking on the role of defending its continued existence.
In addition to these sociopolitical problems, the most recent obstacle to the takeover bid by the bank chaired by Carlos Torres has been Sabadell's sale of TSB, its British subsidiary, for €3.1 billion. Josep Oliu and César González Bueno, chairman and CEO of the Catalan bank, respectively, have managed to impose a new twist in the exciting struggle unleashed by the takeover bid. A clash between financial powers that has ended up entering the political arena, the territorial debate, and the economic centralization of the State.
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The latest sale not only represents an additional financial challenge for BBVA when it comes to evaluating the offer it will ultimately present to Sabadell shareholders. It also reinforces Oliu's claim that the Valles-based bank has potential and that shareholders would be wise to think twice before selling their shares.
And as proof, it offers them a spectacular dividend yield of €3.8 billion, which represents almost 30% of the stock market price. A true record. At this point in the competition, Sabadell is worth 11% more on the stock market than what BBVA offered when it announced its takeover bid, the so-called negative premium. The difference ranges from the €11.5 billion at which BBVA valued Sabadell at the time of the takeover bid to its current capitalization, above €15.3 billion. How much would that offer have to rise to be attractive? In the most demanding calculations, including those of the Catalan bank's management team, around €4 billion, or practically 30%.
Following the sale of TSB, pressure is mounting for an improved offer, despite the Catalan bank being smaller.In the end, by early August and well into September, Sabadell shareholders will have to choose between the promises of a better future within BBVA or the constant and resounding reality of immediate income that will be very unlikely to be repeated in the future.
The essential ingredient is that at the time of payment of the 2.5 billion euros from the sale of TSB, it will be essential to be a Sabadell shareholder, that is, not to have participated in the BBVA takeover bid. BBVA will also receive its share in proportion to the percentage it holds in the Vallesano bank at that time, but the individual shareholder will receive nothing, and it will be the Basque bank that decides what to do with that money.
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Conversely, it has also been suggested that BBVA could adjust the cash-to-share ratio of its offer, increasing the former in proportion to the money that has entered Sabadell's accounts following the sale. But the problem for Torres is that the logic, after the distribution of the additional €2.5 billion dividend, is that the bank will be worth less, but a price reduction cannot be considered; that would be tantamount to condemning itself to defeat.
Analysts have already greatly qualified the negative effects of the measures imposed by the government on the transaction: no merger, at least three years, with the possibility of an extension to five, and no staff reductions or branch closures. Although the bidding bank had estimated cost savings at around 850 million euros, 300 million of which came specifically from jobs and branches, many analysts consulted by this newspaper tend to qualify the significance of this fact. On the one hand, the synergies in this type of bank merger are almost always greater than announced, and the postponement of their execution does not imply their evaporation.
The difference between the offer and the stock market performance plus the super dividend is almost 4 billion euros.The next crucial step, beyond the continuation of the legal process—presentation of the new prospectus by BBVA, approval by the CNMV, and the launch of the offering—will be the next BBVA shareholders' meeting on August 6. If no more than 50% of the share capital is present, the sale of TSB and the distribution of the dividend must be approved by a two-thirds majority of those present. In any case, Sabadell's management is confident that their proposals will be approved without a problem. What shareholder could oppose such a gargantuan dividend?
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