Mexican board member of Sabadell accepts BBVA's bid; board tells investors to reject bid

BBVA's hostile takeover bid for Sabadell gained significant momentum as David Martinez, the third-largest shareholder, announced his acceptance of the improved offer, valuing Sabadell at approximately 16.97 billion euros. This move directly contradicts Sabadell's board, which continues to reject the bid as fundamentally undervaluing the bank—a claim supported by the CEO's assertion of a 26% undervaluation—even as Martinez prioritizes the long-term strategic benefits of forming a major European lender. The development intensifies pressure on other Sabadell shareholders ahead of the October 10th deadline, despite a government-imposed three-year block on a full merger.

Analysis

BBVA's hostile takeover bid for Sabadell has gained critical momentum following the public acceptance of the offer by David Martinez, Sabadell's third-largest shareholder with a 3.86% stake. This move creates a significant fissure in shareholder alignment, directly opposing the formal recommendation from Sabadell's board to reject the bid. The board, supported by CEO Cesar Gonzalez-Bueno, maintains the offer fundamentally undervalues the bank by approximately 26%, even after BBVA improved its terms to 1 BBVA share for every 4.8376 Sabadell shares, implying a value of €16.97 billion. Martinez's rationale prioritizes the long-term strategic benefits of creating a European lender with roughly €1 trillion in assets over the immediate offer price. In a bid to win over remaining shareholders before the October 10 deadline, both institutions are enhancing shareholder returns; BBVA has announced a record interim dividend for 2025 results, while Sabadell increased its 2024 remuneration target to €1.45 billion. Sabadell's strong standalone performance, including a 15.1% ROTE and €1.26 billion in net profit as of August, underpins its board's valuation argument. However, with BBVA needing 50.01% acceptance (with the option to lower the threshold to 30%), Martinez's endorsement materially increases the likelihood of the deal proceeding, despite a government block on a full merger for at least three years.

Key Decisions for Investors

• Sabadell shareholders must now weigh the increased probability of the takeover's success, driven by a major shareholder's endorsement, against the board's argument of undervaluation, which is supported by the bank's strong 15.1% ROTE.
• Investors may explore the merger arbitrage opportunity presented by the spread between Sabadell's market price and BBVA's implied offer, but must carefully consider the risk that the deal fails to secure the minimum 50.01% shareholder acceptance by the October 10 deadline.
• For those evaluating the combined entity, the government's three-year block on a full merger represents a significant medium-term hurdle, potentially delaying synergy realization and complicating the integration process.
• The conflicting actions of enhancing shareholder returns by both banks—BBVA's dividend promise versus Sabadell's increased payout target—should be viewed as tactical maneuvers to influence the shareholder vote rather than fundamental shifts in long-term capital return policy.