BBVA has 'no need' to sweeten Sabadell offer, chairman says

FILE PHOTO: BBVA Chair Carlos Torres Vila speaks ahead of the Annual General Meeting of Shareholders at the Palacio Euskalduna in Bilbao, Spain, March 15, 2024. REUTERS/Vincent West/File Photo

By Jesús Aguado, Andres Gonzalez and Tommy Reggiori Wilkes

LONDON (Reuters) -BBVA's chairman said on Friday that the Spanish bank had "no need" to improve its hostile bid for rival Sabadell, as he vowed to push ahead despite political opposition and regulatory uncertainty.

Asked repeatedly if he would rule out a cash sweetener in the all-share offer, Carlos Torres said in an interview: "It is not our intention to do it, and we don't need to."

Torres defended the bank's approach to Sabadell, saying it was a "knock-out offer" that valued the smaller bank at a 30% premium and was conservative in the assumptions it made about cost savings from a tie-up.

BBVA shocked Spain when it turned hostile in May in its pursuit of Spain's fourth-largest bank with an all-share bid valuing Sabadell at more than 12 billion euros ($12.84 billion).

Sabadell's board rejected the initial offer, saying it undervalued the lender.

Investment bankers and analysts have been speculating that BBVA could add a cash component to woo Sabadell shareholders - half of whom are retail investors - who will not get the chance to vote on the deal for months given the complex and lengthy process of a hostile bid in Spain. Torres said the share component of the deal was fixed and that it could not afford to add much cash "because cash consumes capital. The reason that this deal can be done is because it is financed with shares."

In a message sent to Reuters after the interview, a BBVA spokesperson said the chairman wanted to clarify that the bank ruled out improving the all-share offer.

BBVA is offering one newly issued share for every 4.83 shares of Sabadell, a premium of 30% over the target's closing price on April 29.

The offer had valued Sabadell at 12.28 billion euros but a 15% drop in BBVA shares since has reduced it to 10.4 billion euros, according to Reuters calculations. BBVA has called an extraordinary shareholders' meeting for July 5 to approve a share issue to fund the bid, which Torres said he was confident of getting. The bank must then wait to hear from regulators about any potential remedies. The Spanish government cannot stop Sabadell shareholders from swapping their shares for those of BBVA, but it has the power to block a full merger. Politicians have said the transaction would damage competition in Spanish banking. "Our clear scenario is that there will be a merger, because after going through such a process, it will be unthinkable (not to). Why would the merger not happen?," Torres said.

By 1137 GMT BBVA shares, which were up more than 1% earlier in the day, pared gains to trade 0.45% higher. Sabadell shares were flat.

WATCHED CLOSELY

BBVA's play for Sabadell is the first hostile takeover attempt in Spanish banking since the 1980s and is being watched closely across Europe.

The possibility that BBVA could end up with a majority share in Sabadell without an outright merger has prompted questions about whether BBVA can deliver the 850 million euros in cost synergies it has pledged to achieve.

Last week, the head of Spain's stock market supervisor said it would be "highly desirable" for BBVA to provide information on the synergies without a full merger.

Torres, chairman since 2018, said BBVA could deliver the "more than half" of the 850 million euros in savings without a full merger.

The savings, he said, were conservative, and would largely come from IT integration and funding rather than cutting jobs.

"The synergy estimate we have is on the conservative side," he told Reuters. "I think BBVA has a proven credibility track record of being conservative."

If a full merger was blocked, cost savings would be only up to 150 million euros, a source close to Sabadell said.

A deal with Sabadell would strengthen BBVA's Spanish operations as the bank currently relies on Mexico for more than half of its profits.

Torres said he was confident that a new administration in Mexico under President-elect Claudia Sheinbaum would deliver high economic growth for the next six years.

The chairman also said he felt assured that Turkey, where BBVA owns lender Garanti, would maintain its policy of reversing years of stimulus.

($1 = 0.9344 euros)

(Editing by Elisa Martinuzzi, Jason Neely, Jan Harvey and Anil D'Silva)