BBVA boosts Sabadell bid by 10%, lifts offer to €19.5 bln in all-share deal

BBVA has increased its all-share offer for Banco Sabadell by 10%, valuing the target at €19.5 billion, or €3.39 per share, a significant premium over its prior proposal. The revised bid, which offers tax neutrality for Sabadell shareholders upon majority acceptance, is projected to be 41% accretive to Sabadell's EPS compared to remaining independent, and 3% accretive to BBVA's EPS from the first year post-merger, with a manageable -21 basis point impact on BBVA's CET1 ratio at closing. This strategic acquisition aims to create a larger, stronger banking entity, pending regulatory approval for the revised terms.

Analysis

BBVA has materially improved its all-share acquisition offer for Banco Sabadell, increasing the deal's total value to €19.5 billion from a pre-disclosure estimate of €12.2 billion. The revised exchange ratio of one BBVA share for every 4.8376 Sabadell shares implies a value of €3.39 per share for Sabadell, a valuation described as its highest in over a decade. The deal structure is highly favorable for Sabadell shareholders, offering a significant premium, a potential 41% uplift in earnings per share versus a standalone scenario, and tax neutrality in Spain should acceptance exceed 50%. For BBVA, the acquisition is structured to be financially disciplined and value-accretive from the first year, projecting a 3% increase in its own EPS and a robust 17% return on invested capital. The impact on BBVA's CET1 capital ratio is minimal at an estimated -21 basis points, with a pathway to a net positive impact post-divestiture of Sabadell's UK unit, TSB. The strategic rationale centers on creating a larger, more competitive bank with an enhanced lending capacity of €5.4 billion annually, with the deal's progression now contingent on regulatory approval of the revised prospectus by Spain's CNMV.

Key Decisions for Investors

• Sabadell shareholders should view the revised all-share offer as highly compelling, given the substantial premium, significant EPS accretion, and the introduction of a tax-neutral structure, making acceptance of the bid a strong consideration.
• For BBVA investors, the deal presents a clear path to accretive growth with a manageable capital impact, though they should closely monitor regulatory approvals and the final shareholder acceptance rate as key execution risks.
• Arbitrage-focused investors should evaluate the spread between Sabadell's market price and the implied offer value, while factoring in the primary risks associated with regulatory clearance from the CNMV and the timeline for deal completion.