BBVA has 8 billion euros to fund mandatory bid for Sabadell if needed, CEO says

BBVA CEO Onur Genc confirmed the bank has €8 billion in capital reserved for a mandatory cash offer for Sabadell if its €17 billion all-share hostile bid fails to secure over 50% shareholder acceptance by the October 10 deadline. While BBVA expects to exceed 50%, a take-up between 30% and 50% would necessitate a cash offer, though Genc indicated the €8 billion would be insufficient if a significant portion (e.g., 70% or €11.7 billion) needed to be acquired in cash, potentially requiring new capital which the chairman has ruled out. This underscores BBVA's strategic and financial parameters as it navigates the critical period for consolidating a major European banking entity.

Analysis

MADRID/LONDON, Oct 6 (Reuters) - BBVA (BBVA.MC) has 8 billion euros ($9.4 billion) in capital for a mandatory cash offer for Sabadell (SABE.MC) should it fail to convince enough of its smaller rival's shareholders to accept its hostile offer, Chief Executive Officer Onur Genc said. In an interview with Reuters on Friday, Genc said his base case was that BBVA would get more than 50% of shares in Sabadell to clinch the all-share 17 billion euro ($19.96 billion) takeover offer. Sabadell's shareholders have until October 10 to decide. The Week in Breakingviews newsletter offers insights and ideas from Reuters' global financial commentary team. Sign up here. Advertisement · Scroll to continue If BBVA secures more than 30% but less than 50% of Sabadell shares, it must make a mandatory offer in cash to remaining investors, or walk away from a deal it has been trying to complete since April 2024. A combined entity would become one of the largest lenders in Europe by assets, with about 1 trillion euros. Should it decide to make a mandatory cash offer, "we don't need to raise capital in our view", Genc said. Whether BBVA makes such an offer would depend on several factors, including the percentage of shareholders it would need to buy Sabadell out, he said. "If it's between 30% and 50%, it might, it might not happen. Depends on the take-up, depends on the price, depends on market conditions," Genc said. Advertisement · Scroll to continue If BBVA needed to buy out 70% of shares in cash, currently with a market value of 11.7 billion euros, the 8 billion euros would not be enough and it would need alternative sources of finance such as raising capital, something its chairman has ruled out. MOST PROBABLE OUTCOME, ACCORDING TO CITI Citi assigned a 45% probability that the take-up would be in the 30%-to-50% range. BBVA's CEO said the bank estimated it would end 2025 with a core tier-1 capital ratio of 13.75%, which would imply excess capital of 7 billion euros above its 12% solvency target, without including the suspended 1 billion euro share buy-back. Jefferies analysts believe a cash bid for the remaining capital would be more realistic if the take-up rate approaches 50%. A mandatory offer would be conducted at the same price as the current offer, Genc said, although the fair-value price would be set by the supervisor. Shareholders of Sabadell are widely dispersed and around 40% are retail investors. BBVA's chances of clinching the deal improved after it increased the bid and David Martinez, Sabadell's largest individual shareholder, agreed to tender his 3.86% stake although Sabadell's board reiterated that BBVA's improved bid undervalued the lender. ($1 = 0.8514 euros) Reporting by Jesús Aguado; Editing by Edmund Klamann Our Standards: The Thomson Reuters Trust Principles. BBVA's management has outlined the financial mechanics of its hostile takeover bid for Sabadell, confirming €8 billion in available capital for a potential mandatory cash offer. The success of the €17 billion all-share deal hinges on achieving over 50% shareholder acceptance by the October 10 deadline, a scenario BBVA presents as its base case. However, a significant gray area exists if acceptance falls between 30% and 50%, which would trigger a mandatory cash offer. Citi analysts assign a 45% probability to this intermediate outcome, highlighting the considerable uncertainty. BBVA's CEO, Onur Genc, noted that proceeding with a cash offer in this range is not guaranteed and depends on market conditions and the specific take-up rate. Crucially, the €8 billion in capital would be insufficient to buy out a substantial majority, such as 70% of shares valued at €11.7 billion, and the bank's chairman has ruled out raising new capital. While the deal has secured support from Sabadell's largest individual shareholder (3.86%), the board remains opposed, and the dispersed nature of the 40% retail shareholder base makes the final tender result difficult to predict.

Key Decisions for Investors

• Investors in BBVA should closely monitor the Sabadell shareholder acceptance rate, as a result between 30% and 50% creates significant uncertainty and potential capital strain, given the stated refusal to raise new equity.
• Sabadell shareholders must weigh the certainty of the current all-share offer against the conditional possibility of a mandatory cash offer, recognizing that BBVA may walk away if the acceptance rate is unfavorable.
• For event-driven strategies, the primary risk is not a simple deal failure but the ambiguous outcome within the 30-50% acceptance range, where BBVA's commitment to a cash bid is discretionary and its capital is constrained.
• The projected post-deal CET1 ratio of 13.75% by 2025 should be viewed as contingent on the base case scenario of a successful all-share offer, and would be negatively impacted by a costly mandatory cash purchase.