Zhitong Finance learned that Barclays analysts said that if Banco de Sabadell SA (Banco de Sabadell SA) sells the British subsidiary TSB Bank Group, it will allow Spain's hostile takeover of Bilbao Bank (BBVA.US) to increase cash. Analysts led by Cecilia Romero Reyes said in a Monday report that the divestment of the TSB Bank Group “will allow BBVA to provide up to 10% of the cash portion in the takeover offer, with limited impact on BBVA shareholders' CET1.” Analysts said: “In the UK, BBVA and TSB will lack the scale to implement its growth strategy, which aims to combine scale and profitability, and we think the divestment may be welcome.”

A rare hostile takeover, Spain's banking sector faces dramatic changes

BBVA issued a hostile takeover offer to Banco Sabadell last week, a move not seen in Spanish banks since the late 1980s. The company's acquisition proposed to exchange 4.83 shares of Banco Sabadell for 1 new BBVA share per share.

The Spanish Bank of Bilbao made a takeover offer worth 12.23 billion euros (about 13.11 billion US dollars) to its rival Sabadell Bank last Thursday, directly attacking shareholders. Although the board of directors of Banco Sabadell had rejected the proposal on the same terms earlier last week. According to the Royal Bank of Canada's capital market assessment, the proposal valued Sabadell Bank at $12.2 billion, which is equivalent to $13.1 billion.

As the second-largest bank by market capitalization in Spain, the exchange rate proposed by BBVA is a 30% premium over the closing price of Sabadell Bank on April 29. However, Banco Sabadell rejected the proposal in a statement on Monday, arguing that it greatly undervalues the bank and emphasized that its independence strategy would create greater value for shareholders.

Even so, BBVA's executive chairman Carlos Torres Vila (Carlos Torres Vila) said they made a very attractive offer to Sabadell's shareholders, with the goal of creating a larger bank in this key Spanish market.

Faced with the gradual weakening of the boosting effect of high interest rates, Spanish banks are looking for new ways to increase revenue. If BBVA successfully acquires Sabadell Bank, it will help it shift from major markets such as Mexico and developing economies such as Turkey and South America to a diversification strategy focused more on the domestic market.

BBVA's CEO Onur Genc emphasized that all stakeholders would benefit from this operation. He mentioned the significant progress made by Sabadell Bank in recent years and said that its shareholders now have the opportunity to join a banking entity with outstanding growth and profitability in Europe. BBVA expects the deal will save €850 million in pre-tax costs, and Sabadell's shareholders will receive 16% of the shares in the merged bank.

BBVA's vision is to create a bank with more than 100 million customers and assets of more than 1 trillion euros worldwide, which will make it second only to Santander (SAN.US) in the Spanish banking industry. The merged bank will also surpass Caixabank to become Spain's largest domestic bank. Currently, Caixabank's assets in Spain exceed 625 billion euros, while Caixabank's assets are slightly more than 574 billion euros.

In the European banking industry, malicious takeovers are uncommon. The most recent example is Intesa Sanpaolo's successful acquisition of UBI Banca in 2020. The Spanish banking sector is undergoing a period of consolidation, and banks are seeking to increase competitiveness by cutting costs and increasing scale. Since the 2008 global financial crisis, the number of banks in Spain has been reduced from 55 to 10 now.

On an analysts' conference call last week, when asked if TSB would be sold after the Sabadell Bank acquisition, BBVA CEO Onur Genc said, “It's still too early to draw conclusions.” BBVA had previously tried to buy Sabadell Bank at the end of 2020, but negotiations broke down due to price issues. According to media reports at the time, Sabadell Bank then considered selling TSB.