BBVA Proposes Merger with Banco Sabadell to Create Spanish Banking Powerhouse

BBVA, one of the largest banks in Spain, has made a formal offer to acquire Banco Sabadell in a deal that would create a new Spanish banking giant with over €1 trillion in assets. The proposed merger aims to serve more than 100 million clients worldwide and become the largest bank by market capitalization in the Eurozone.

Why this matters: This merger has significant implications for the European banking sector, as it would create a more competitive and robust player capable of rivaling other global banking giants. The deal's success could also trigger a wave of consolidation in the industry, leading to a more efficient and resilient financial system.

Under the terms of the offer, BBVA would acquire Sabadell for €2.26 per share, representing a 30% premium over Sabadell's share price as of April 29th. The exchange ratio is set at 1 newly issued BBVA share for every 4.83 Banco Sabadell shares, giving Sabadell shareholders a 16% stake in the resulting entity. BBVA expects the deal to lead to a 3.5% improvement in earnings per share and a 1% increase in tangible book value per share.

BBVA emphasizes the strategic fit and complementarity of the two banks, with Sabadell being a benchmark in Spain's business segment and a leader in digitalization and sustainability. In a press release, BBVA stated, "Banco Sabadell's presence in the United Kingdom would add to BBVA's global scale and its leadership in Mexico, Turkey, and South America."

The merged entity is projected to generate €850 million in pre-tax annual cost savings, with an upfront pre-tax restructuring charge of €1.45 billion. The integration would create a more solid and efficient bank with greater global capacity to support companies in their international expansion. The new entity's increased ability to provide credit to the real economy is estimated to have a future impact of an additional €5 billion per year.

BBVA pledges its total commitment to Catalonia, a key market for both entities, and promises to bolster support for the region's business, cultural, scientific, and social sectors through banking activity and the respective foundations. To preserve the best talent and culture of both organizations, BBVA proposes forming an integration committee, respecting professional competence and merit, and creating an advisory council for Spain.

As part of the merger, BBVA offers Sabadell three seats on its Board of Directors, including the vice-chairman position. The potential combination would give the new entity a 19% share in loans, close to market leaders CaixaBank at 23.4% and Santander at 17.5%. Sabadell's larger relative exposure to small and medium-sized enterprises would complement BBVA's optimal platform for long-term retail business growth in Spain.

The proposed merger would tactically dilute BBVA's exposure to emerging markets from 77% of earnings to 66%, pro forma. While Sabadell's presence in the UK through TSB would "add to BBVA's global scale," it remains to be seen what stance BBVA would take in the country, given its existing stake in UK digital bank Atom Bank.

The creation of a stronger, more profitable entity through this merger is expected to further support society through greater tax contributions and increased, attractive shareholder distributions. Spanish banking sector consolidation continues, with the proposed merger between BBVA and Banco Sabadell marking a significant step towards the formation of a new domestic champion capable of competing on a European scale.

Key Takeaways

• BBVA proposes merging with Banco Sabadell to create a €1 trillion asset bank.
• The deal would create a European leader, serving 100 million clients worldwide.
• BBVA offers €2.26 per Sabadell share, a 30% premium over April 29th price.
• The merged entity would generate €850 million in annual cost savings.
• The deal would create a more solid bank, supporting companies' international expansion.