By Elena Vardon


Spain's Banco Bilbao Vizcaya Argentaria launched a hostile all-share bid of about $12.4 billion for smaller rival Banco de Sabadell after its board rejected an initial proposal on the same terms.

BBVA is now going directly to Sabadell's shareholders in the hope of pushing through a merger of the two banks that, if successful, would create one of biggest banks in Europe and Spain's second-biggest financial institution by size of balance sheet.

A Sabadell spokesperson told Dow Jones Newswires that the group rejects BBVA's fresh offer, pointing to the reasons why its board rebuffed the first proposal earlier this week. Sabadell's board rejected BBVA's approach saying the proposal put forward was unsolicited and substantially undervalued its potential and its standalone growth prospects.

BBVA's offer values the Sabadell's shares at EUR2.12 each, implying a total value of 11.53 billion euros ($12.39 billion) based on the average price of the quarter prior to the announcement. Sabadell shares closed at EUR1.80 on Wednesday.

Added to BBVA's market capitalization of about EUR60.5 billion as of Wednesday's close, the potential market value of the combined entity would still trail BNP Paribas's EUR79.1 billion and Banco Santander's EUR75.5 billion among eurozone banks by that metric. BBVA previously said it aims to become the largest bank by market capitalization of the eurozone.

The news sent Sabadell shares up and BBVA's down at the European market open. At 0722 GMT, shares in BBVA fell 5.9% to EUR9.67, while Sabadell's shares jumped 4.9% to EUR1.86. Given the all-share nature of the offer, a weaker BBVA stock makes the offer look less attractive.

The pair considered a merger in 2020 but failed to reach an agreement over the price and called off the talks. Sabadell's market value has surged since then, as higher interest rates boosted lenders' fortunes in the past couple of years.

This time around, BBVA is offering to takeover its smaller rival through an all-share deal offering one new BBVA share for every 4.83 Sabadell shares, it said Thursday, the same exchange ratio initially proposed by BBVA.

Earlier this week, Sabadell published a message it received from BBVA's chair underlining that the bidder had no room to improve the terms of the offer.

BBVA shares have fallen since the merger interest news emerged on April 30, effectively reducing the 30% premium for Sabadell shares based on the stocks' closing prices on the day before the talks were reported.

"We are presenting to Banco Sabadell's shareholders an extraordinarily attractive offer to create a bank with greater scale in one of our most important markets," said BBVA Chair Carlos Torres Vila said.

The approval of shareholders representing at least 50.01% of Sabadell's share capital is needed for the offer to be accepted.

A potential deal would increase BBVA's presence in its home market and in the U.K.--where Sabadell operates through its TSB business and BBVA has a stake in digital bank Atom--boosting its exposure to developed markets and reducing its reliance on emerging markets. Mexico is currently BBVA's biggest market and the bank has a big presence in Turkey and Latin America as well.


Write to Elena Vardon at elena.vardon@wsj.com


(END) Dow Jones Newswires

05-09-24 0346ET