425: BBVA CEO Confident on Sabadell Takeover Despite Regulatory Hurdles, Cites Compelling Offer and Strategic Rationale

BBVA CEO Onur Gen remains optimistic about the proposed takeover of Banco Sabadell, emphasizing the significant premium offered and the strategic benefits of the merger despite ongoing regulatory scrutiny and government reservations.

Summary

• BBVA is pursuing the acquisition of Banco Sabadell, a deal that has received clearance from the ECB and the UK's competition regulator but still requires approval from Spanish authorities and Sabadell shareholders.
• BBVA CEO Onur Gen believes the offer for Sabadell is attractive, highlighting a 30% premium over the undisturbed price on April 29th and a 50% premium over the three-month average before that date.
• Gen emphasizes that the deal would improve Sabadell shareholders' earnings per share by 27%, based on independent consensus figures.
• The Spanish Government has expressed concerns about the potential merger, but BBVA believes these concerns can be addressed through dialogue and by highlighting the benefits of the merger for the Spanish economy, including an additional 5 billion in lending capacity.
• BBVA argues that the merger is not primarily about cost-cutting but about growth, as the two banks have complementary business focuses.
• Gen points out that a larger bank merger (Bankia-Caixa) was previously approved in Spain without issue and that the BBVA-Sabadell merger does not exceed competition thresholds.
• He stresses the need for European banks to consolidate to compete globally, citing the absence of EU banks in the top 20 worldwide by market capitalization.
• Gen notes that the Spanish economy is performing well, with a growth forecast of 2.7% driven by immigration, service-based industries, tourism, and the Next Generation EU funding.
• BBVA has filed a Registration Statement on Form F-4 with the SEC, including an offer to exchange/prospectus, urging investors and security holders to read the document.
• The communication contains forward-looking statements subject to risks, uncertainties, and other factors that could cause actual results to differ materially.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive. The CEO expresses confidence in the deal's progress and benefits, but there are still regulatory and political hurdles to overcome. The emphasis on growth and synergies is encouraging, but the forward-looking statements are subject to risks and uncertainties.

Positives

• The proposed merger has already received key regulatory approvals from the ECB and the UK competition regulator.
• BBVA believes the offer price represents a significant premium for Sabadell shareholders.
• The merger is expected to improve Sabadell shareholders' earnings per share.
• BBVA emphasizes the potential for growth and increased lending capacity for the Spanish economy.
• The company believes it can address the Spanish government's concerns through dialogue.
• BBVA highlights the complementary nature of the two banks' businesses, suggesting a smooth integration.
• The CEO points to Spain's strong economic growth as a positive backdrop for the merger.

Negatives

• The merger still requires approval from Spanish competition and securities regulators, as well as a majority of Sabadell shareholders.
• The Spanish Government has expressed concerns about the potential merger.
• The deal is complex and faces political hurdles.
• The document contains forward-looking statements subject to risks, uncertainties, and other factors that could cause actual results to differ materially.

Risks

• Failure to obtain necessary approvals from Spanish regulators and Sabadell shareholders could derail the merger.
• Political opposition from the Spanish Government could hinder the merger process.
• Integration of the two banks could present challenges and may not result in the expected synergies.
• Adverse effects on the market price of BBVA shares could result from matters relating to the transaction.
• The transaction could negatively impact the ability of BBVA or Banco Sabadell to retain customers and key personnel.
• The combined company may be unable to achieve synergies or it may take longer than expected to achieve those synergies.

Future Outlook

BBVA anticipates completing the acquisition of Sabadell, pending regulatory approvals and shareholder acceptance, and expects the merger to drive growth and efficiency.

Management Comments

• We don't have the necessity, nor the need, nor the intention to increase the price.
• We do think this is good for Spain.
• This is not a merger of pure cost cutting. This is a merger of growth.
• We cannot compete globally if we cannot grow.

Industry Context

The announcement highlights the ongoing trend of banking consolidation in Europe, driven by the need for scale to compete globally and invest in technology. The potential merger between UniCredit and Commerzbank is mentioned as another example of this trend.

Comparison to Industry Standards

• The CEO references the Bankia-Caixa merger as a precedent for a large bank merger being approved in Spain.
• The CEO states that the proposed merger does not exceed the thresholds of the Bankia-Caixa merger.
• The CEO notes that the proposed merger does not trigger any of the thresholds that the European competition is foreseeing.
• The CEO highlights the absence of EU banks in the top 20 worldwide by market capitalization, indicating a need for European banks to grow and compete globally.

Stakeholder Impact

• Shareholders of Sabadell could benefit from the premium offered by BBVA.
• The merger could lead to job losses, although BBVA emphasizes that it is a merger for growth, not just cost-cutting.
• Clients of both banks could benefit from improved products and services due to increased efficiency.
• The Spanish economy could benefit from increased lending capacity.

Next Steps

• Obtain approval from the Spanish competition authority.
• Initiate the acceptance period, asking Sabadell shareholders to tender their shares.
• Complete the merger stage, integrating the two banks.

Key Dates