A rare hostile takeover bid in Europe's banking sector has shocked markets

• Spanish bank BBVA caught markets by surprise after it announced a rare hostile takeover bid for domestic rival Banco Sabadell.
• It comes shortly after a separate 12 billion euro ($12.87 billion) offer from BBVA to Sabadell’s board was rejected earlier in the week.
• David Benamou, chief investment officer at Axiom, said BBVA’s takeover offer for Sabadell was reflective of “a very strange situation indeed.”

A logo outside the Banco Sabadell SA offices at the Banc Sabadell Tower in Barcelona, Spain, on Wednesday, May 1, 2024.

Spanish bank BBVA caught markets by surprise on Thursday after it announced a rare hostile takeover bid for domestic rival Banco Sabadell, with one investment firm describing the situation as “very strange.”

The move comes shortly after a separate 12 billion euro ($12.87 billion) takeover offer from BBVA to Sabadell’s board was rejected earlier in the week.

The board said Monday that BBVA’s initial bid “significantly undervalues” the bank’s growth prospects, adding that its standalone strategy will create superior value. It reiterated this position on Thursday as BBVA took its all-share offer directly to the bank’s shareholders.

BBVA said its takeover offer has the same financial terms as the merger offered to Sabadell’s board. It characterized the proposal — which would create Spain’s second-largest financial institution if successful — as “extraordinarily attractive.”

“We are presenting to Banco Sabadell’s shareholders an extraordinarily attractive offer to create a bank with greater scale in one of our most important markets,” BBVA Chair Carlos Torres Vila said in a statement.

“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.”

Shares of BBVA fell 6% at around midday London time on Thursday, while Sabadell’s stock price rose more than 3%.

‘Not so easy’

Hostile takeover bids are not common in the European banking sector and BBVA’s decision to proceed in this way has taken many by surprise.

Carlo Messina, CEO of Italy’s biggest bank Intesa Sanpaolo, told CNBC on Wednesday that there were significant challenges to domestic consolidation within the region’s banking sector.

He said it was difficult to complete a “friendly transaction” in the current market environment, whereas proceeding with a hostile takeover bid was also “not so easy to do.”

David Benamou, chief investment officer at Axiom, said BBVA’s offer for Sabadell was reflective of “a very strange situation indeed.”

Speaking to CNBC’s “Squawk Box Europe” on Thursday, Benamou said the proposed offer “makes sense” from Sabadell shareholders’ point of view and, in his opinion, was likely to go through. He cited the fact that BBVA’s offer represents a 30% premium over the closing price of both banks as of April 29th.

“It echoes to the recent discussions in Switzerland with the consolidation of Credit Suisse by UBS and all the worries about financial stability,” he added.

“I think the execution of the transaction might be rather difficult, although you can argue it is the same geography, the culture is theoretically very close as opposed to a cross-border merger.”

Benamou said a burgeoning trend of consolidation among European banks was a logical one, particularly because many regional lenders are “very small” compared to their U.S. peers.

Signage outside a Banco Bilbao Vizcaya Argentaria SA (BBVA), right, and a Banco Sabadell SA, left, bank branch in Barcelona, Spain, on Wednesday, May 1, 2024.

Spain’s Economy Ministry said in a statement that the government rejects BBVA’s hostile takeover bid for Sabadell, “both in form and substance.”

The ministry also warned that the proposed deal “introduces potential harmful effects on the Spanish financial system.”