Don’t write off BBVA’s chances in its Sabadell takeover
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Do the 1980s ever really go out of style? Not in Spanish banking.
BBVA chair Carlos Torres last month launched the first hostile offer for a Spanish bank since that decade. He had already upset the board of target Sabadell by failing to engage before his April takeover pitch. Markets have given Torres’s tactics short shrift, knocking down BBVA’s share price and wiping €4bn of value from the potential combination since the offer was launched.
Still, don’t count out BBVA. For a start, its pursuit has sound industrial logic. Since selling its US business in 2020, its earnings have been largely reliant on Mexico’s booming market. A larger Spanish business would soften the blow when Mexico cools.
Investors have taken umbrage at the financial details. The expected addition to earnings per share is small. Meanwhile, the size of promised cost cuts is in question, as is the cash outlay required to achieve them. Sabadell has also consistently outperformed market expectations under chief executive César González-Bueno.
A strong Spanish economy has boosted Sabadell. How that fares, in relation to Mexico, will be important when Sabadell shareholders choose whether to sell. BBVA will first need regulatory approval, which could take six months. It can still increase its offer, though it has suggested it won’t.
Mexico still looks like an asset to BBVA in this fight, despite the fall in bank stocks after Claudia Sheinbaum’s victory in Sunday’s election. Its success there explains why its shares trade at a 20 per cent premium to book value. The nation is booming as supply chains shift from China to the US’s low-cost neighbour. Returns on equity across the Mexican banking system of 19 per cent last year were the highest for more than a decade.
Both banks will try to show their best face in the months before the tender offer launches. The ace in Sabadell’s hand is that 50 per cent of its shareholders are retail investors. Many of these are also customers. BBVA will struggle to get them to tender without the support of Sabadell’s board.
But Torres, with the flexibility to bump his offer, has set the bar low with just 50.1 per cent needed to proceed. The outlook for banking in Spain, where loans tend to be priced off market rates, is tougher as interest rates start to fall.
The market appears convinced, pricing more than an 80 per cent chance of success, thinks Mark Kelly of MKP Advisors. Whether due to a changing economic backdrop or a sweetener on the price, it is too soon to write off BBVA’s chances.
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