Spain’s BBVA files rare hostile takeover bid for rival Sabadell

Spanish bank BBVA caught markets by surprise on Thursday after it announced a rare hostile takeover attempt at domestic rival Banco Sabadell, with one investment firm calling the situation “very strange”.

The move comes shortly after BBVA’s separate 12 billion euro ($12.87 billion) takeover bid was rejected by Sabadell’s board earlier this week.

The board said Monday that BBVA’s initial offer “significantly underestimates” the bank’s growth prospects, adding that its separate strategy would create greater value. He reiterated that position on Thursday when BBVA sent an offer to buy all shares directly to the bank’s shareholders.

BBVA said its takeover offer has the same financial terms as the merger offer proposed to Sabadell’s board of directors. He described the proposal, which if successful would create Spain’s second-largest financial institution, as “extremely attractive.”

“We present to Banco Sabadell shareholders an extremely attractive proposal to create a bank of 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, providing additional lending capacity of €5 billion per year in Spain.”

Shares in BBVA were down 6% at around midday London time on Thursday, while Sabadell’s share price was up more than 3%.

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

Carlo Messina, CEO of Italy’s largest bank Intesa Sanpaolo, told CNBC on Wednesday that there are serious problems with internal consolidation in the region’s banking sector.

He said it was difficult to do a “friendly deal” in the current market environment, but it was also “not so easy” to do a hostile takeover.

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

Speaking on CNBC’s Squawk Box Europe on Thursday, Benhamou said the proposed proposal “makes sense” from the perspective of Sabadell shareholders and he believes it is likely to pass. He cited the fact that BBVA’s offer represents a 30% premium to both banks’ April 29 closing prices.

“This echoes recent discussions in Switzerland about the Credit Suisse UBS consolidation and all the concerns about financial stability,” he added.

“I think executing a deal could be quite difficult, although one could argue that it is the same geography, the culture is theoretically very close, as opposed to a cross-border merger.”

Benhamou said the growing trend of consolidation among European banks is logical, especially because many regional lenders are “very small” compared to their American counterparts.

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

The ministry also warned that the proposed deal “has a potentially harmful impact on the Spanish financial system.”