Spain’s BBVA has made a bid of approximately 12 billion euros ($12.8 billion) to acquire its smaller rival, Sabadell. This move comes as a second attempt, after a failed merger proposal in 2020.
If successful, the merger would create the second-largest bank in Spain, boasting over 1 trillion euros in total assets. BBVA aims to strengthen its presence in its domestic market by diversifying away from Mexico, South America, and Turkey.
The proposed merger would result in a bank serving more than 100 million customers worldwide, with BBVA aspiring to become the largest bank by market capitalization in the euro area.
BBVA’s offer entails an exchange ratio of 1 newly issued BBVA share for every 4.83 Sabadell shares, representing a 30% premium over Sabadell’s closing prices on April 29. Sabadell’s board is now tasked with evaluating the offer, after witnessing a five-fold increase in its share price since 2020.
While the potential merger promises significant cost savings and increased scale, it also involves strategic considerations. Sabadell’s strength in serving small and medium enterprises complements BBVA’s business model. Additionally, Sabadell’s presence in the UK through TSB, acquired in 2015, would further enhance BBVA’s global reach.
BBVA estimates that the merger would lead to a 3.5% improvement in earnings per share (EPS) in the first year, with approximately 850 million euros in pre-tax savings. This would translate to a return on investment of close to 20% for BBVA shareholders.
The proposed merger would also result in changes to the board, with three members of Sabadell’s current board joining BBVA’s board of directors as non-executive directors.