BBVA is using a “copy and paste” approach to its €12.23 billion hostile bid for Spanish rival Banco Sabadell, a senior investment banker in Madrid told me recently. The deal BBVA appears to be copying, according to the banker, is Intesa Sanpaolo’s 2020 takeover of Italian rival UBI Banca – Europe’s only other hostile bank takeover since 2008.
Intesa’s €4.9 billion bid for UBI was almost entirely the making of Italian investment bank Mediobanca, Intesa’s sole M&A adviser. This makes more intriguing BBVA’s decision to add Mediobanca as one of its advisers on the Sabadell bid, after it became hostile this May.
Mediobanca’s Spanish office is not normally known for domestic deals like this. Last year, it was not in the top 10 in Spanish M&A, according to Dealogic, unlike BBVA’s other advisers, JPMorgan, UBS and, later, Rothschild, which it added after Sabadell’s board rejected a friendly offer.
Intesa’s UBI deal could, on the face of it, offer an encouraging precedent for BBVA, as that transaction was widely hailed as a success, despite the opposition of UBI’s board. The UBI deal was so successful, indeed, that it played a large part in Jean Pierre Mustier’s ejection later in 2020 from Intesa’s arch-rival. UniCredit was seen to have missed the opportunity to snap up UBI, only a year after Mustier oversaw the sale of an 8.4% stake in Mediobanca, bringing the latter closer to Intesa.
Intesa’s UBI deal could, on the face of it, offer an encouraging precedent for BBVA, as that transaction was widely hailed as a success
But there are major differences. Perhaps most importantly, whereas BBVA today is mainly international, Intesa’s business was overwhelmingly Italian, even before the UBI acquisition.
Because of Intesa’s domestic weighting, chief executive Carlo Messina had long cultivated an image as a national champion, a vessel for national pride – notably when taking over the good bits of failing lenders Veneto Banca and Banca Popolare di Vicenza in 2017. The government paid Intesa to do so. BBVA, by contrast, was notably absent from the 2017 resolution of Spanish mid-tier lender Banco Popular, which Santander bought for €1. Some sources still remember how BBVA was the only large Spanish lender not to contribute to the Spanish bad bank when the state turned to private-sector investors at the height of the eurozone crisis in 2012.
Yet, if anything, BBVA would have needed more goodwill in its account, not less, for its attempt at a Sabadell deal to achieve political acceptability in Spain over the target’s opposition.
Sabadell’s chairman Josep Oliu – who took over the running of the bank from his father three decades ago – is a much more powerful local personality than anyone was at UBI. Added to that, Sabadell is still largely a Catalonia-based bank. Political tensions between Madrid (where BBVA is based) and Catalonia are, obviously, much greater than between Turin (Intesa’s base) and Lombardy (UBI’s base).
Antipathy
Spanish prime minister Pedro Sanchez’s government relies on support from Catalan separatist parties. BBVA went hostile just days before Catalan regional elections in May.
BBVA subsequently faces a much greater degree of national and regional political antipathy to its Sabadell offer than Intesa ever faced over UBI. Not only are Catalan separatist leaders opposed, the government in Madrid has also voiced its opposition to the takeover. Economy minister Carlos Cuerpo has threatened to block it.
Carlos Torres Vila, BBVA’s executive chairman, has said it could still extract most of its promised synergies (€850 million, pre-tax, over three years) even if it had to own the two banks side-by-side, without being able to fully integrate their operations – a claim that understandably raises some doubt among analysts. Squeezing out as much from synergies as possible is crucial in traditional bank M&A, which is why domestic consolidation like this is more common than cross-border mergers.
That said, the situation is not great for Oliu and his close colleagues, either. Even if most retail shareholders listen to Sabadell’s criticisms and reject the offer, BBVA may get the 50.1% shareholder approval it needs to clinch the acquisition, thanks to the institutional vote.
BBVA is offering to swap its shares for those of Sabadell at a 30% premium to the closing prices of the two entities on the day before news of the deal broke, which is a 50% premium to the weighted three-month average.
In the UBI deal, after it secured competition-authority approval, Intesa added a cash component to sweeten the consideration by up to €652 million, 18% above the previous all-share offer (which was also at a 30% premium). That helped it win over some influential local investors who were previously opposed. Could BBVA do the same?
Torres has said there’s no need, and he may be right, in the sense of his ability to secure the 50.1% take-up. Sabadell’s shares are still trading below the offer price, which was not the case for UBI.
In Sabadell’s case, theoretically, a cash sweetener might help turn the tide of political opposition, especially if it persuaded Oliu and co – mindful of their future roles – to support it, and if the competition authority gives the green light.
Timing
The other problem and big difference to the UBI deal, however, is the timing. BBVA’s bid for Sabadell was not as much of a surprise as the Intesa-UBI deal, not least as BBVA first examined a Sabadell takeover around the same time, in 2020. A lot has happened since then, especially at Sabadell. Four years ago, bank investors were intensely worried about the effect of negative interest rates and Covid-19 lockdowns on southern European SME credit. Sabadell looked much weaker.
Since 2020, due to managerial actions and macro-economic factors, Sabadell’s share price has risen by much more than that of BBVA. That makes it harder for BBVA to increase its offer without endangering the appropriate financial payback. Four years ago, moreover, BBVA might have looked more like a white knight, rescuing the company at a time of existential risk. That it only came back to the table when Sabadell was much healthier, hardly exemplifies its faith and commitment to Spain.
In the UBI deal, a domestic investment bank helped get a hostile domestic merger over the line. In BBVA-Sabadell, even if most advisers are Spanish individuals, they all work for international banks.
If Mediobanca was effective in the UBI deal, it was perhaps less down to strategic genius and more to knowledge and connections in Italy, including Mediobanca’s historic web of cross-shareholders which previously included insurer Unipol. The latter became Italy’s second largest insurer a decade ago, after Mediobanca advised it on a four-way merger.
In the UBI deal, Unipol was crucial in helping Mediobanca pre-empt competition concerns, as the insurer was the cornerstone investor behind the purchase of up to 500 UBI branches by another mid-tier Italian bank, BPER.
In the Sabadell deal, Mediobanca may still have some useful experience to impart from UBI. But relationships like this are clearly something it lacks in Spain.
