The government's decision in BBVA's takeover bid for Sabadell delays the possible merger by up to five years.
The penultimate chapter of BBVA's hostile takeover bid for Sabadell closed yesterday with a sharp tightening of the conditions imposed by the central government to authorize the takeover bid, forcing the buyer to maintain the Catalan bank's legal and asset status, as well as its management autonomy, for three years (extendable to two more). While the National Commission on Markets and Competition (CNMVC) imposed the maintenance of certain commercial conditions, Pedro Sánchez's administration is forcing them to maintain all of them because they must remain two independent banks.
The Minister of Economy, Carlos Cuerpo, justified these additional conditions imposed on BBVA by arguing that they would protect the workforce, foster territorial cohesion, support the social work of foundations, and provide financing and credit, particularly to SMEs. Cuerpo clarified that the merger request between the two entities could only be submitted once the condition imposed today by the Council of Ministers, which is the maintenance of the independence of both entities for three years, extendable to five, has been met.
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"The condition is proportional and balanced," Cuerpo stated in response to questions from journalists at the press conference following the Council of Ministers. "There are no obstacles to the procedure continuing," the minister added. In fact, what the government did yesterday was apply a moratorium on the merger of up to five years.
For BBVA, this has two direct consequences that it must carefully analyze. The first is that it is doubtful that there will be synergies with the transaction during this period, as legal, asset, and management independence must be maintained. The government's decision also makes it more difficult to lay off employees and close branches, which are common in these merger processes. The second consequence stems from the need for more capital resources to maintain its stake in another financial institution.
The Basque-based entity remains silent while analyzing the impact of the government's agreement.Specifically, yesterday, following the news, the Catalan bank requested that BBVA, once the government's decision was known, provide "information on the impact of these conditions, both on the expected synergies and on its ability to reward shareholders in the future." In Sabadell's opinion, "such information is relevant to our shareholders."
BBVA did not comment yesterday while it analyzes the impact of the government's decision.
Among the specific implications of the government's decision, the most notable is the obligation to maintain Banc Sabadell's credit committees in place and operating completely autonomously for a period that could reach up to five years. The measure, as La Vanguardia reported yesterday, aims to guarantee the flow of credit, not only for SMEs, but for the entire economy.
Regarding staff and offices, Minister Cuerpo understands that they should remain as they are currently, with the aim of ensuring continuity with the project in both cases. However, he emphasized that all decisions, including those affecting employment and offices, must be made independently by the autonomous councils, always in the interest of the general interest and maximizing value. This way, the entities would have the ability to make cuts if circumstances beyond the control of the merger arise (such as a general crisis in the banking sector).
The minister did not clarify what will happen with the integration of the two entities' technological platforms and reiterated that decisions must be made independently by each entity for the sake of the general interest and consumer protection.
Cuerpo indicated yesterday that it's possible that if the takeover bid goes ahead and BBVA becomes the owner of Sabadell, the bank's management and board of directors would be completely changed. But they would obviously have to guarantee independence.
The Council of Ministers' agreement is supported by the 25-page report, which highlights that the SME sector's exposure is 19 points higher in the case of Sabadell than in BBVA. It adds that in previous mergers, such as Bankia-CaixaBank and Unicaja-Liberbank, the exposure to the SME business in the resulting new entity was always reduced. In the report, the Government notes the significant reduction in employment that occurred in previous mergers.
In the online press conference held during the APIE course in Santander, Minister Cuerpo stated that, in the interest of respecting proportionality, the three-plus-two-year period is non-extendable. Therefore, after these five years, if BBVA proposes it, the government in power at that time should approve or reject the merger.
Sabadell is asking BBVA to quantify the new synergies and dividends following the resolution.During his speech, Cuerpo also specified that, once the first three years have elapsed, BBVA must submit two reports to the Government. In the first, it must justify that during the first three years it has complied with the mandate of autonomous management in the interest of the general public, and in the second, it will explain how the general interest criteria will be affected by the merger of both entities. Minister Cuerpo did not specify what sanctioning or other action the Government has in the event that BBVA fails to comply with its commitments during these years.
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