BBVA refuses to raise offer for Spanish bank merger with TSB owner Sabadell

Spanish banking giant Banco Bilbao Vizcaya Argentaria (BBVA) has written to smaller domestic rival Banco Sabadell saying that it would not raise its offer for a merger, which Sabadell rejected earlier this week.

BBVA’s executive chair Carlos Torres told Sabadell on 5 May that the bank had “no room to improve its economic terms” for a roughly €12bn (£10.3bn) all-share merger proposal it made last Tuesday, according to a stock market filing by Sabadell.

A combination of Spain’s second and fourth-largest banks would boast 100m customers worldwide and total assets of more than one trillion euros (£858bn) – second only to Santander, the eurozone’s biggest lender.

Sabadell, which owns British high street bank TSB, rejected BBVA’s offer on Monday, arguing that the “unsolicited, indicative and conditional proposal” undervalued the bank’s potential.

BBVA offered an exchange ratio of one newly issued BBVA share for every 4.83 Sabadell shares, a premium of 30 per cent to their closing price on 29 April, the last session before it made the offer.

Torres told Sabadell that the ratio is a 48 per cent premium to the share prices when BBVA’s board considered an offer in mid-April, which “far exceeds” the premium it was considering to propose.

“In other words, in our proposal we have already used up all the room we had, after having maintained a premium of 30 per cent despite the large relative increase of your shares from mid-April to 29 April,” he said.

“In addition, since last Tuesday the market has also made it clear that there is no further upside, as BBVA’s market capitalization has fallen in the period by more than €6bn.”

Analysts warned last week that the gap between BBVA’s offer and Sabadell’s share price signalled a risk that the deal might not go ahead. Sabadell’s shares rose around nine per cent in the days after the offer, while BBVA fell almost 10 per cent.

Torres said: “This situation absolutely prevents us from being able to pay more premium than we are already offering, because if we were to do so it is foreseeable that our value would fall again (even by an amount higher than the premium increase we would make).

“The messages received from investors and analysts over the last five days are equally clear in this regard, and therefore agree with our analysis regarding the economic impact of the transaction for BBVA.”

Sabadell and BBVA previously called off merger talks in November 2020 after disagreeing on the terms and price of the deal.

The breakdown was reportedly triggered in part by a clash over the valuation of TSB, one of Britain’s biggest high street banks, which Sabadell bought for £1.7bn in 2015.