Spanish banking giant BBVA’s (BBVA.MC) hostile takeover bid for Sabadell (SABE.MC) is approaching a crucial juncture as the country’s competition regulator is expected to rule on the deal as early as March, Reuters reported. The acquisition, announced ten months ago, has underscored the complexities and political sensitivities of banking mergers in Europe. If completed, it would become Spain’s second-largest banking transaction by assets.
Regulatory Decision Imminent
BBVA Chairman Carlos Torres remains optimistic that the competition regulator will approve the deal with “acceptable remedies,” such as maintaining branch operations in areas with no viable alternatives. However, Sabadell has dismissed these proposed remedies as insufficient, arguing for structural changes like asset disposals instead of temporary measures.
The regulatory review process began in November when the antitrust body requested additional time to assess whether the deal should be authorized outright, subject to conditions, or blocked. If BBVA’s proposed commitments are deemed inadequate, the regulator can impose stricter conditions or, ultimately, reject the deal.
Upcoming Hurdles
Beyond the competition authority’s decision, the deal must secure approval from two additional entities: Spain’s market supervisor and the government. Once cleared, Sabadell shareholders will have 30 to 70 days to vote on BBVA’s bid.
The Spanish government, led by Prime Minister Pedro Sánchez, has expressed opposition to the merger due to concerns over job losses and reduced consumer banking options. Although competition law limits direct governmental intervention, Spain’s economy ministry has the authority to escalate the case to a cabinet-level review if the antitrust regulator imposes conditions. The government then has one month to reject the deal under what is informally known as a ‘phase 3 review.’
Sabadell has actively sought political support against the merger, including relocating its legal headquarters back to Catalonia, its traditional stronghold. This move is widely seen as an effort to align with regional stakeholders and strengthen its resistance to BBVA’s takeover attempt.
Merger Outcome Still Uncertain
While BBVA remains committed to the acquisition, there is no guarantee of a full merger. Even if the government cannot block BBVA’s bid, it could still prevent an outright integration of the two banks. In that scenario, BBVA might have to operate Sabadell as a separate entity temporarily, a scenario that the latter strongly opposes.
BBVA argues that keeping Sabadell independent would still allow for significant cost savings, but such an arrangement falls short of its preferred outcome of a full consolidation.
Market Expectations and Potential Sweeteners
Despite regulatory and political headwinds, financial markets anticipate a takeover but believe BBVA may need to improve its offer. Initially structured as an all-share bid, the deal included a 30% premium over Sabadell’s April 29 closing price.
BBVA has so far ruled out increasing its bid, but analysts suggest the bank could introduce a modest cash component of €1-2 billion while still maintaining an 18%-19% return on investment. Technically, BBVA can enhance its offer up to five days before the bid acceptance period ends.
“Things change by the day, and many important stakeholders still need to weigh in, but the market seems to be pricing in a probability that this deal can go through,” said Antonio Reale, an analyst at Bank of America.
