Sabadell's CEO says sale of TSB would complicate BBVA's bid for lender

Sabadell's CEO confirmed the proposed £2.65 billion sale of its TSB unit to Santander, a strategic divestment intended to fund a €2.5 billion extraordinary cash dividend for shareholders. This move significantly complicates BBVA's hostile ~€14 billion takeover bid for Sabadell, as it alters the target's asset base and could necessitate a higher offer from BBVA, despite its stated reluctance to sweeten terms. The sale, framed by Sabadell as both value-accretive and a defensive measure, prompted a more than 5% rise in Sabadell's shares, signaling market approval of its resistance to the unsolicited bid.

Analysis

Sabadell is executing a sophisticated defensive strategy against BBVA's hostile takeover bid by divesting its British unit, TSB, to Santander for an initial £2.65 billion. This move is designed to complicate the acquisition by altering Sabadell's asset composition, a development BBVA's chairman had previously indicated could lead to a withdrawal of their offer. Despite this, BBVA is proceeding with its approximately €14 billion bid, creating a challenging dynamic where they are pursuing a diminished target without signaling any intent to raise their offer price. Sabadell's management is framing the TSB sale as a value-accretive move for its own shareholders, using the proceeds to fund a significant €2.5 billion extraordinary cash dividend, or €0.50 per share. The market has endorsed this strategy, evidenced by a more than 5% increase in Sabadell's shares following the announcement, reinforcing the board's position. This strategic divestment, coupled with the Spanish government's effective three-year block on a full merger, places considerable pressure on BBVA and hinges on the upcoming shareholder approval on August 6th.

Key Decisions for Investors

• Sabadell shareholders should consider the TSB sale and the associated €2.5 billion special dividend as a tangible value crystallization event that strengthens the case for rejecting BBVA's current bid.
• Investors in BBVA should recognize the increased execution risk of the Sabadell acquisition, as the bid now targets a smaller entity (ex-TSB) at the original price, making the deal's economics less attractive absent a price adjustment.
• Event-driven and arbitrage investors should closely monitor the August 6 shareholder vote and any guidance from Spanish regulators, as these will be the primary catalysts determining the success of Sabadell's defense and the ultimate outcome of BBVA's bid.