425: BBVA Pursues Banco Sabadell Acquisition with Share Exchange Offer

BBVA is proceeding with an offer to Banco Sabadell shareholders to exchange their shares for BBVA shares, aiming to create a stronger, more competitive banking entity.

Summary

• BBVA has launched an offer to Banco Sabadell shareholders to exchange their shares for BBVA shares, with the ultimate goal of merging the two banks.
• The proposed merger aims to create a stronger and more competitive entity with greater scale to address challenges in the financial sector and invest in digital transformation.
• The offer represents a premium of 30% over the closing prices on April 29, 42% over the volume weighted average prices of the month prior to April 29, and 50% over the weighted average prices for the previous three months.
• Banco Sabadell shareholders would acquire approximately a 16% stake in BBVA, assuming 100% uptake.
• The transaction is expected to increase earnings per share by about 27% for Banco Sabadell shareholders due to synergies of 850 million.
• The consideration has been adjusted to reflect dividends paid by both banks, with shareholders receiving one new share in BBVA and 0.29 in cash for every 5.0196 shares in Banco Sabadell.
• BBVA expects a limited impact on its CET1 ratio of approximately -38 basis points assuming 100% uptake.
• Restructuring costs associated with the merger are estimated at approximately 1.45 billion before taxes.
• The estimated value of synergies associated with the merger is 850 million before taxes, including operating cost savings and savings in funding costs.
• BBVA intends to lend an additional 5 billion per year to families and businesses following the merger.
• The merger is expected to conclude by mid-2025, subject to regulatory approvals.
• BBVA is committed to maintaining financial services in rural areas and supporting regions where Banco Sabadell has a strong presence.
• BBVA's Extraordinary Shareholders Meeting approved the capital increase needed for the share exchange with 96% votes in favor.
• BBVA has received green light from the Prudential Regulation Authority (PRA) and non-opposition from the European Central Bank.
• The acceptance period for the share exchange for Banco Sabadell shareholders will take from 30 to 70 natural days.

Sentiment

Score: 7

Explanation: The document presents a positive outlook on the proposed merger, highlighting the potential benefits for shareholders, customers, and the economy. However, it also acknowledges the associated risks and costs, resulting in a moderately positive sentiment score.

Positives

• The merger aims to create a stronger, more competitive banking entity.
• Banco Sabadell shareholders are offered a premium on their shares.
• The transaction is expected to increase earnings per share for Banco Sabadell shareholders.
• The combined entity is expected to generate significant synergies.
• BBVA is committed to maintaining financial services in rural areas.
• The merger is expected to increase lending to households and businesses.
• BBVA's Extraordinary Shareholders Meeting approved the capital increase needed for the share exchange with 96% votes in favor.
• BBVA has received green light from the Prudential Regulation Authority (PRA) and non-opposition from the European Central Bank.

Negatives

• Restructuring costs associated with the merger are estimated at 1.45 billion before taxes.
• The merger could result in the closure of some bank branches.
• There is a potential impact on BBVA's CET1 ratio.
• Banco Sabadell shareholders who do not accept the offer may face reduced liquidity of their shares.

Risks

• The transaction is subject to regulatory approvals, including from the Spanish Competition Authority (CNMC), the European Central Bank, and the Spanish financial markets regulator (CNMV).
• There is a risk that the merger may not be completed or may be delayed.
• The integration of the two banks could face challenges.
• The combined company may be unable to achieve the expected synergies.
• There is a risk of disruption to management time from ongoing business operations.
• The transaction could have an adverse effect on the ability of BBVA or Banco Sabadell to retain customers and key personnel.
• The market price of BBVA shares could be adversely affected by matters relating to the transaction.

Future Outlook

BBVA anticipates completing the merger by mid-2025, subject to regulatory approvals, and expects to generate significant synergies and increase lending to households and businesses.

Management Comments

• The aim is ultimately to merge the two banks, to build a stronger, more competitive and profitable entity and erect a benchmark within the market in terms of assets, loans and deposits.
• BBVA remains firmly committed to all the markets in which it operates, and from a position of strength it will intensify its support for businesses and for cultural, scientific and social projects.
• BBVA's intention is to boost the growth of the combined bank, calculating a capacity to lend an additional 5 billion to families and businesses per year.

Industry Context

This announcement reflects the ongoing consolidation trend in the European banking sector, driven by the need to achieve greater scale, improve efficiency, and invest in digital transformation. Other recent mergers and acquisitions in the sector include the merger of CaixaBank and Bankia in Spain, and the potential acquisition of Commerzbank by UniCredit.

Comparison to Industry Standards

• The projected synergies of 850 million are significant, but in line with other large bank mergers in Europe.
• The estimated restructuring costs of 1.45 billion are also comparable to other similar transactions.
• The CET1 impact of -38 basis points is relatively small, suggesting that BBVA is well-capitalized and can absorb the impact of the merger.
• The planned increase in lending of 5 billion per year is a positive sign for the Spanish economy.

Stakeholder Impact

• Shareholders of both BBVA and Banco Sabadell are expected to benefit from the merger through increased earnings per share and synergies.
• Customers of both banks will have access to a wider range of products and services and a larger network of branches and ATMs.
• Employees of both banks may have access to new career and growth opportunities.
• The combined bank is expected to lend more to households and businesses, contributing to economic growth.
• The transaction is expected to generate tax revenue for the public coffers.

Next Steps

• Obtain approval from the Spanish Competition Authority (CNMC).
• Obtain authorization from the Spanish financial markets regulator (CNMV).
• Secure uptake of the offer by Banco Sabadell shareholders representing the majority of its share capital (more than 50.01 percent).
• Complete the merger of the two banks, subject to authorization from the Spanish Ministry of Economy, Commerce and Enterprise.

Key Dates