425: BBVA Offers Banco Sabadell Shareholders Exceptionally Favorable Deal, Proposing Merger to Create European Banking Powerhouse

BBVA has presented an offer to Banco Sabadell shareholders to exchange one BBVA share for every 4.83 Sabadell shares, representing a 30% premium, aiming to create one of Europe's best banks.

Summary

• BBVA is offering Banco Sabadell shareholders one BBVA share for every 4.83 Sabadell shares.
• This represents a 30% premium over the closing price on April 29th and a 50% premium over the past three months' weighted average prices.
• The merger aims to create one of the best banks in Europe, with a loan market share close to 22% in Spain.
• BBVA expects the deal to be EPS positive from the first year after the merger, with an improvement of about 3.5% once savings of around €850 million before taxes are realized.
• The tangible book value per share is expected to improve by around 1% on the merger date.
• BBVA anticipates a return on investment (ROIC) close to an incremental 20% for BBVA shareholders.
• The impact on BBVA's CET1 capital ratio is estimated at approximately -30 basis points.
• Banco Sabadell shareholders would hold a 16.0% stake in the resulting entity.
• The combined entity will have double operational headquarters in Spain: one in Sant Cugat del Valls (Barcelona) and the other in Ciudad BBVA, in Madrid.
• BBVA expects the technological integration to take between 12 and 18 months.
• The closing of the operation is expected to take between six to eight months, once regulatory authorizations have been obtained.

Sentiment

Score: 8

Explanation: The document presents a highly positive outlook on the proposed merger, emphasizing the benefits for shareholders, customers, and employees. The financial metrics and management comments suggest strong confidence in the success of the transaction.

Positives

• The deal offers a significant premium to Banco Sabadell shareholders.
• The merger is expected to be EPS positive for BBVA from the first year.
• The combined entity will have a strong market position in Spain.
• BBVA expects a high return on investment for its shareholders.
• The impact on BBVA's CET1 capital ratio is limited.
• Customers will have access to a unique value proposition, thanks to the complementarity of the franchises, a greater product offering and the banks global reach.
• Employees will benefit from new professional opportunities to grow in a global bank.
• The creation of a stronger, more profitable institution will also result in more financing for companies and families and a greater contribution via taxes.

Risks

• The offer is subject to regulatory approvals, including those from the Spanish Market and Competition regulator (CNMC) and the U.K.'s Prudential Regulation Authority.
• The deal is contingent on BBVA acquiring more than 50.01% of Banco Sabadell shares.
• There are risks associated with integrating the businesses of the two companies.
• The combined company may be unable to achieve synergies or it may take longer than expected.
• The expected decline in interest rates, although with an expected decline, will maintain reasonable levels for the banking business, constitute growth levers for the financial system.

Future Outlook

BBVA expects the transaction to be EPS positive from the first year after the merger and anticipates significant synergies and value creation for shareholders. The bank will maintain its shareholder distribution policy and commitment to distribute excess capital.

Management Comments

• We are presenting to Banco Sabadells shareholders an extraordinarily attractive offer to create a bank with greater scale in one of our most important markets, said BBVA Chair Carlos Torres Vila.
• Together we will have a greater positive impact in the geographies where we operate, with an additional 5 billion loan capacity per year in Spain.
• All stakeholders will benefit from this operation, said BBVA CEO Onur Gen.
• Banco Sabadell has done an excellent job, with remarkable progress in recent years, and now its shareholders can join an entity with an unparalleled combination of growth and profitability in Europe.

Industry Context

This announcement reflects a trend towards consolidation in the European banking sector, driven by the need to achieve greater scale, improve efficiency, and enhance competitiveness. The merger would create a major player in the Spanish market, challenging the dominance of existing large banks.

Comparison to Industry Standards

• A comparable merger in the European banking sector is the merger of Unicredit and HypoVereinsbank, which created a major cross-border banking group.
• The projected synergies of €850 million are significant and in line with other large-scale bank mergers.
• The targeted ROIC of 20% is ambitious but achievable given the potential for cost savings and revenue enhancements.
• The CET1 impact of -30 basis points is relatively small, indicating that BBVA is well-capitalized and can absorb the impact of the merger.

Stakeholder Impact

• Shareholders of Banco Sabadell will receive a premium for their shares.
• Customers will have access to a broader range of products and services.
• Employees will have new professional opportunities.
• The combined entity will be able to provide more financing to companies and families.
• The merger will result in a greater contribution via taxes.

Next Steps

• BBVA intends to file a Registration Statement on Form F-4 with the U.S. Securities and Exchange Commission (SEC).
• The offer is subject to acquiring more than 50.01 percent of Banco Sabadell shares.
• The offer requires the approval of the Shareholders General Meeting.
• The offer requires approvals from the Spanish Market and Competition regulator (CNMC) and the U.K.'s Prudential Regulation Authority.
• The closing of the operation is expected to take between six to eight months, once regulatory authorizations have been obtained.

Key Dates