Jefferies | BBVA’s Adjusted Offer to Sabadell: Cash Component Was a Given. The adjusted offer made by BBVA to SAB, including the newly added cash component, comes as no surprise, as it is well in line with the adjustment terms described in the initial offer. We note a delay in the timeline of the deal would mechanically increase the cash proportion of the offer, which would have to reflect all future capital distributions announced by BBVA.
On Tuesday, BBVA published an adjusted offer for Sabadell shareholders (see here). This is nothing more than a technical adjustment, as described in the terms of the initial offer dated 24th May 2024. Accordingly, starting with 10th October 2024 (BBVA’s interim payment date), the offer is adjusted to 1 newly issued BBVA share and €0.29 in cash for every 5.0196 ordinary shares of Sabadell (versus 1 newly issued BBVA share for every 4.83 ordinary shares of Sabadell previously).
We note some articles in the local press have labeled the newly added cash component as a ‘sweetener’ for Sabadell shareholders. However, this should have come as no surprise, and is exactly in line with the adjustment terms described in the initial offer, that specify that any distribution made by Sabadell will be adjusted for through the share exchange ratio, whereas any distribution made by BBVA will be adjusted for through a cash component, as per Exhibit 1.
| Exhibit 1 |
The real surprise here would have been the €0.29 1H interim dividend announced by BBVA, which exceeded market expectations of €0.22. We believe part of the beat is explained by BBVA’s decision to substitute buybacks with dividends momentarily (buybacks on hold while the SAB deal is ongoing). With the FY payout policy of 40-50% maintained, this likely suggests the 1H interim dividend was to some extent a front-loading of the total distributions for the year.
We do think Sabadell shareholders value having part of the proposed compensation paid in cash, as protection in the face of potential volatility in BBVA’s share price. The cash proportion would mechanically increase even more if the deal analysis by the CNMC is pushed into Stage 2 (which would likely see an outcome presented close to mid-2025), as future BBVA distributions from here would have to be adjusted again through cash.
We also note in previous transactions, such as the Intesa – UBI Banca in 2020, the bidder ended up increasing the initial offer by adding a cash component during the acceptance period, in order to secure completion of the deal.
