When BBVA submitted a merger proposal for Banco Sabadell in late April, there was already one notable feature in the discussions which didn’t immediately seem to be in BBVA’s favour. The advisers.
On BBVA’s side, JPMorgan and UBS have highly respected financial institutions investment-banking franchises. JPMorgan is the world’s largest bank by market capitalization and a force to be reckoned with in almost any market. UBS, meanwhile, is particularly strong in advising European financial institutions, partly reflecting its base in Switzerland – and partly thanks to the legacy of Andrea Orcel, an Italian former financial institutions investment banker who moved to UBS from what was then Bank of America Merrill Lynch in 2012.
Orcel left UBS more than five years ago and is now chief executive of UniCredit. The Swiss bank’s co-head of global banking Javier Oficialdegui is at origin a Spanish financial institutions banker, and one of the people who moved to UBS with Orcel.
Sabadell’s rejection of the offer might now give BBVA’s chair an opportunity to exit a deal that would preoccupy management time
Meanwhile, Banco Sabadell is advised by Morgan Stanley and Goldman Sachs, which are typically seen as the preeminent M&A advisers for financial institutions globally, and often regarded as being in a different league to others in this business. In 2023, for example, these two firms were the clear one and two in Dealogic’s volume ranking for advising M&A between financial institutions – unless you include JPMorgan’s own acquisition of First Republic Bank.
There is an argument to say that advisers with larger existing market shares will – all things being equal – feel less need to push clients to do deals that have a high risk of going wrong. They are also better able to cherry pick the deals and clients with the best chances of success.
On Monday – a few days after BBVA’s approach became public – Sabadell rejected what it described as an unsolicited approach that undervalued the bank, despite being at a 30% premium to the firm’s undisturbed price and coming after Sabadell’s share price had already risen by more than five times since 2020.
The deal could still go ahead, of course. Sabadell’s stance could just be the first step in longer-term negotiations. BBVA previously approached Sabadell about a merger in 2020, when the deal again broke down because of price.
Unfriendly approach
However, there are two main problems. Firstly, Sabadell’s wording suggests it considers this an unfriendly approach. Unfriendly deals are always harder to get done partly because banks, especially regional lenders such as Sabadell, are so important to the local economy and local economic pride.
Note that Sabadell is named after the Catalan town of Sabadell. The bank’s chairman Josep Oliu is deeply rooted in the locality, having taken over the bank’s leadership from his father three decades ago. Oliu relinquished executive duties after BBVA’s initial approach four years ago, so his personal role may be less of a barrier to accepting BBVA’s proposals. However, he is someone who will care a lot about his legacy in his local community and employment there.
As part of the offer, BBVA said it would maintain two operational headquarters in Spain: one in Madrid and the other in Banco Sabadell’s corporate centre in Sant Cugat del Vallès, in between Sabadell and Barcelona. But such claims are less credible when the merger is portrayed as a hostile one.
Share price
Intesa Sanpaolo’s 2020 takeover of UBI Banca was a rare example of a hostile regional bank M&A deal that went ahead. But the other and perhaps bigger barrier to BBVA’s success here is that its share price fell when it announced the offer – in contrast to Intesa’s share price after it announced its UBI bid, and in contrast to the share price of CaixaBank when it announced its more consensual Bankia merger the same year. BBVA’s market capitalization, in fact, shrank by €4.2 billion on the day it announced the new bid. It then rose on the morning that Sabadell said it was rejecting the offer.
Rather than paying even more, Sabadell’s rejection of the offer might now give BBVA’s chair Carlos Torres Vila an opportunity to exit a deal that would preoccupy management time and discussion about the stock for years to come. The investment banks might not go completely empty handed if they can claim an announcement fee. For BBVA, backing out won’t look good, but it will be much more rapidly forgotten.