Spain Puts Brakes on BBVA-Sabadell Merger, Deal Faces Uncertain Future

In a move that dampens hopes for a swift integration, Spain’s Economy Minister Carlos Cuerpo announced Tuesday that any potential merger between the two banks would be subject to a mandatory delay. Per Bloomberg, Cuerpo stated that BBVA would be allowed to pursue its offer only if both banks maintain separate operations for a minimum of three years, and potentially up to five. Only after that period could a legal merger be considered, he said.

The announcement triggered an immediate response in the markets. Shares of Sabadell, which had previously climbed on optimism around the deal, reversed course and became one of the weakest performers in a key European banking index. Investors appeared concerned about the diminishing prospects for near-term cost savings, a key motivation behind the proposed merger.

Related: Spain Weighs Additional Conditions on BBVA’s Hostile Bid for Sabadell

While BBVA had earlier indicated a willingness to proceed with its offer even without immediate consolidation, the government’s restrictions introduce new uncertainty. The lack of immediate integration may significantly reduce the financial appeal of the acquisition in the short term.

“We believe that BBVA should walk away from Sabadell and compensate shareholders for a messy year with a large buyback,” RBC analyst Benjamin Toms noted in a client memo, as reported by Bloomberg.

In response to the government’s stance, BBVA issued a brief statement saying it is currently reviewing the imposed conditions.

Source: Bloomberg