The courtship of BBVA and Banco Sabadell has barely lasted 11 days since both acknowledged in separate communications to the CNMV that they were holding talks for a possible merger, which would lead to the creation of the second bank in Spain and one of the top five in Europe. Although it was on Thursday night that they both declared the negotiations broken and the markets were notified early on Friday, since last November 18, after a public intervention by the CEO of BBVA, Onur Genç, the talks began to stagger.

Genç threw a jug of cold water that day on the market’s expectations regarding the eventual operation, stating that it could not be taken for granted that it would materialize, and that the entity had different strategic options on the table, which led to Sabadell’s titles will react downward.

In the background of the statements of number two of BBVA was the price that Sabadell demanded for its absorption, about 2,700 million euros, which represented a premium of around 35% over what the bank was trading just before announcing the talks of fusion.

The bank chaired by Josep Oliu not only considered that BBVA had to look at the market value of Sabadell, but also what it considered the great strengths of the entity in the Spanish market. Its weight in the SME business, with more than 13% market share, compared to 15% for BBVA, only two percentage points of difference, despite the distance in size of each one, or the possibility of reducing risks of BBVA in emerging markets by adding more weight in Spain, according to several analysts. Sabadell also maintained that with a roadmap already designed by Goldman Sachs, the synergies that BBVA could obtain offset the price it was asking for its sale in about two years.

The bank chaired by Carlos Torres, however, considered that the operation did not create enough value for the shareholder at present to pay a first one like the one claimed by the Sabadell board of directors.

Despite the fact that both had made progress on various issues to carry out the merger, at the end of Thursday, at 9:00 p.m., the boards of directors met telematically, to consider the negotiations broken. At 10:30 p.m. the negotiation was concluded. The project was broken. A few hours before, Torres and Oliu had had a tense conversation in which they assumed that the operation had entered a dead end, and they communicated this to the governor of the Bank of Spain, Pablo Hernández de Cos.

To the drawer

Both banks have kept in a drawer the design of the merger, whose approval by the boards of directors was scheduled for December 11, although they had not yet called such meetings.

The operation was to be carried out by exchanging shares, although on some occasion BBVA had dropped that it could do so through a cash purchase, it does not lack money. In a few months, it will receive about 9.7 billion euros for the sale of its subsidiary in the US to PNC, an operation announced hours before also informing the CNMV that it was in talks for its merger with Sabadell.

The trade-off equation never matched. In fact, both banks acknowledged on Friday that the operation will not be carried out due to economic disagreements. Sabadell explained in a statement to the CNMV that it had ended the talks “as the parties had not reached an agreement on the eventual exchange ratio of the shares of both entities.” BBVA limited itself to noting that the talks have ended without an agreement.

The governance design assures both banks that it has never been a problem. Torres was to maintain his position as CEO, Oliu was to be non-executive vice president. Sabadell was thus going to have two other councils, in addition to Oliu, out of a total of 15. The head office would be in Bilbao and there would be two operating headquarters, one in Madrid (that of BBVA) and the other in Barcelona (that of Sabadell).

Will there be a new attempt?

Quotation. Banco Sabadell shot up 27% in the days following the announcement of the negotiations, although since then it has lost more than half of the ground gained. The entity closed on Friday at 0.35 euros, after falling 13.58% on the day. Its market capitalization amounts to 2,000 million euros.

What could have been. The union of both entities would have added assets in Spain of 612,000 million; It will thus be the second bank in the country, behind the merger of CaixaBank and Bankia. Assets would total 963,108 million euros (727,014 million from BBVA and 236,094 from Sabadell), a total of 9,769 branches in the geographies in which it operates (7,565 from BBVA and 2,204 from Sabadell) and 148,028 employees. In Spain, the group would have 4,225 offices in Spain (2,521 from BBVA and 1,704 from Sabadell) and with 45,866 employees (29,475 from BBVA and 16,391 from Sabadell), a high volume that would have generated synergies while reducing costs.

Operation not closed. The market does not consider this operation closed. He thinks they will negotiate again. Sabadell has also not wanted to be blunt with the break, although it was he who decided to stand.


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