Spain’s BBVA launches a rare hostile takeover bid for rival Sabadell

Spanish bank BBVA surprised markets on Thursday after announcing a rare hostile takeover bid for domestic rival Banco Sabadell, with one investment firm describing the situation as “very strange”.

The move comes shortly after a separate takeover bid from BBVA to Sabadell’s board worth 12 billion euros was rejected earlier this week.

The board said on Monday that BBVA’s initial offer “significantly undervalues” the bank’s growth prospects, adding that the standalone strategy will create superior value. It reiterated this position on Thursday when BBVA made its all-share offer directly to the bank’s shareholders.

BBVA said the takeover bid has the same financial terms as the merger offered to the Sabadell board. It characterized the proposal – which if successful would create Spain’s second-largest financial institution – as “extremely attractive”.

“We present the shareholders of Banco Sabadell with an extremely attractive offer to create a bank with greater scale in one of our most important markets,” BBVA Chairman Carlos Torres Vila said in a statement.

“Together we will have a greater positive impact in the regions where we operate, with an additional lending capacity of €5 billion per year in Spain.”

Shares of BBVA fell 6% around midday in London on Thursday, while Sabadell’s share price rose more than 3%.

Hostile takeover bids are not common in the European banking sector and BBVA’s decision to proceed in this manner has taken many by surprise.

Carlo Messina, CEO of Italy’s largest bank Intesa Sanpaolo, told CNBC on Wednesday that there are significant challenges to domestic consolidation within the region’s banking sector.

He said that in the current market environment it was difficult to achieve a “friendly transaction”, while it was also “not so easy to proceed with a hostile takeover bid”.

David Benamou, chief investment officer at Axiom, said BBVA’s bid for Sabadell reflected “a very strange situation indeed”.

Speaking to CNBC’s “Squawk Box Europe” on Thursday, Benamou said the proposed offer “makes sense” from the standpoint of Sabadell shareholders and that in his view it would likely go ahead. He cited the fact that BBVA’s offer represents a 30% premium to the closing share price of both banks on April 29.

“It reflects the recent discussions in Switzerland about the consolidation of Credit Suisse by UBS and all the concerns about financial stability,” he added.

“I think the execution of the transaction could be quite difficult, although you can argue that it is the same geographical location. The culture is theoretically very close, unlike a cross-border merger.”

Benamou said a growing trend of consolidation among European banks made sense, especially as many regional lenders are “very small” compared to their US peers.

Spain’s Economy Ministry said in a statement that the government rejects BBVA’s hostile takeover bid for Sabadell, “both in form and in content.”

The ministry also warned that the proposed deal “introduces possible harmful consequences for the Spanish financial system.”