The chief executive of Spanish lender Sabadell attacked BBVA ‘s hostile takeover bid, calling the deal “completely derailed” and plagued by “insurmountable” execution risks. BBVA, the second-largest Spanish bank, has been engaged in a bitter 16-month takeover attempt of its smaller rival in an all-share deal valued at 15.3 billion euros ($18 billion). Sabadell’s CEO Cesar Gonzalez-Bueno told CNBC’s “Squawk Box Europe” on Friday that BBVA’s bid “fundamentally undervalues the bank” after his board recommended that shareholders reject the offer. Sabadell’s shareholders now have until Oct. 7 to decide whether to accept BBVA’s all-share offer or back Sabadell’s standalone strategy. The shareholder vote comes after an unprecedented government intervention authorized the acquisition but blocked any operational integration for at least three years in a bid to protect jobs. Sabadell’s Gonzalez-Bueno said that the government-imposed conditions have made the promised benefits of a merger impossible to achieve. He also warned that a full merger “might never happen” due to the “huge” social reaction in Spain and the need for a separate government authorization down the line. Onur Genc, chief executive of BBVA, has previously said, “the deal is a great deal for everyone”. “The banking sector globally, especially in Europe, we need scale,” Genc told analysts in late July. “Big banks, small banks, in our view, it doesn’t matter, especially banks which operate in mass banking … They cannot compete unless they find a way to consolidate.” But Gonzalez-Bueno took aim at this justification, suggesting the creation of a banking giant controlling nearly 25% of the domestic market would backfire. “The execution rationale of local and national integrations is undoubtfully very powerful until it reaches a limit,” González-Bueno said. “When it reaches a limit of concentration, then it carries negative synergies that are very significant.” González-Bueno suggested that Sabadell’s small and medium-sized (SMEs) customers could move their business elsewhere to diversify their banking relationships if the deal went through. “One in two SMEs are clients of Banco Sabadell,” he added. The defense from Sabadell’s leadership comes as markets have moved sharply against BBVA. SAB-ES 1Y line Sabadell’s shares have surged since the bid was first announced, erasing the offer’s original 30% premium and leaving it trading at a negative differential of around 9%. BBVA did not immediately respond to CNBC’s request for comment. Is the deal dead? Bank of America analysts maintain that the deal is not dead, arguing that the economics are “diluted but don’t derail”. They estimate that cost savings of around 450 million euros annually are still feasible in the short term. “BBVA’s bid still offers a solid industrial and financial rationale, despite the restrictions imposed by the Spanish government,” said Bank of America’s analyst Antonio Reale in a note to clients on July 2. “A three-year delay on a legal merger or integration of operations dilutes but doesn’t derail the deal economics, in our view.” The consensus price target of analysts, compiled by FactSet, points to BBVA shares trading at fair value. BBVA has said it does not intend to raise its offer, though it can legally do so until late September. Shortly after the deal was announced, ratings agency Scope said it would massively benefit BBVA shareholders and the newly merged entity would be “unmatched in Spain”. “The potential of higher profitability, supported by expected cost synergies, make the takeover appealing to shareholders,” said Scope Ratings Analyst Carola Saldias Castillo in a research note earlier this year. The analyst added that the combination would “reshape the banking competitive landscape,” creating a third giant alongside Santander and CaixaBank , with the top three controlling close to 65% of the Spanish market. — CNBC’s Silvia Amaro, Charlotte Reed and Juliana Tatlebaum contributed reporting.
