Banco Sabadell’s board of directors has urged its shareholders to reject the share exchange offer made by rival bank BBVA.
The board firmly believes that the offer “significantly undervalues the bank, its strategic plan and its future prospects.”
BBVA’s proposal entails an exchange of one of its common shares plus €0.70 ($1.17) in cash for every 5.5483 Sabadell shares.
Sabadell rebuffed BBVA’s advances, having previously rejected merger proposals in November 2020 and May 2024.
The board stated that it “has full confidence in Banco Sabadell’s growth strategy and its ability to achieve its financial objectives, and considers that the offer destroys shareholder value, while Banco Sabadell’s strategy as an independent bank will generate greater value and higher returns for its shareholders than integration with BBVA.”
The bank has submitted a detailed board report to the Spanish securities regulator (CNMV), with financial advisory provided by Evercore, Goldman Sachs, and Morgan Stanley.
The report outlines several concerns for shareholders in considering the offer.
For instance, shareholders who accept will no longer hold stakes in Banco Sabadell and will become shareholders of BBVA.
Furthermore, the report highlights potential tax implications for Spanish-domiciled shareholders, with most facing a tax bill that exceeds the cash component of BBVA’s offer.
Shareholders who do not tender their shares will remain with Banco Sabadell, which will continue to trade on the stock exchange, even if BBVA acquires over 50% stake as the merger will face at least next three to five years integration delay.
The board also emphasises that Sabadell, as an independent entity, is projected to generate greater value and higher distributions for its shareholders, with expected returns of around 37% of the current share price between 2025 and 2027.
Additionally, shareholders who accept BBVA’s offer will miss out on an “extraordinary dividend” of €0.50 per share scheduled for early 2026.
Risks associated with accepting BBVA’s offer are outlined in the report.
These include the higher cost of capital and “significant volatility” due to currency devaluations and geopolitical risks in BBVA’s operations in primary emerging markets.
The report warns of a 22-day illiquidity period for shareholders who accept the offer, during which they cannot trade their shares.
The Board is particularly concerned about the possibility that BBVA might acquire a stake in Banco Sabadell ranging from 30% to 49.9%. If this threshold is reached, BBVA would be required to initiate a second cash takeover bid.
This situation poses a risk for Sabadell shareholders who have already accepted the current offer, as they would be exposed to the uncertainties of the second bid. This subsequent bid could necessitate a significant capital increase, which in turn could lead to a considerable decline in share prices.
Moreover, the board points out that BBVA’s calculations do not account for potential “negative synergies”, such as customer attrition due to the hostile bid.
BBVA plans to conduct face-to-face events and remote meetings across various regions in Spain from 15 September to 3 October, aiming to provide more information and address shareholder queries about the ongoing share exchange offer.
