The Minister of Economy Raises the Takeover Bid to the Council of Ministers, Which Will Ultimately Decide on the Operation

Decision made. The Ministry of Economy will raise the BBVA takeover bid for Banco Sabadell to the Council of Ministers, opening the door to imposing new conditions on an operation that has already been reviewed by the European Central Bank (ECB) and the National Commission on Markets and Competition (CNMC), in a process that has lasted over a year.

"I have just informed both the CNMC and BBVA and Sabadell about the elevation of the decision regarding the takeover bid to the Council of Ministers based on reasons of general interest," confirmed the Minister of Economy, Carlos Cuerpo, on Tuesday in brief statements to the media in the Senate, where he was attending to appear in the government's control session.

Specifically, five ministries have requested the elevation, according to knowledgeable sources: the Ministry of Industry and Tourism, the Ministry of Labour and Social Economy and Social Rights, the Ministry of Ecological Transition, the Ministry of Social Security, and the Ministry of Consumer Affairs and Agenda 2030. The Ministry of Economy will request detailed reports from all of them to justify possible additional measures already imposed by Competition.

"Our internal analysis indicates that we need to deepen the vision and monitoring of the potential impact of the operation on such vital and important elements in our economy as employment protection, financial inclusion, or territorial cohesion," pointed out Cuerpo, who recalled that the elevation does not prejudge the final decision that will have to be made within 30 calendar days.

Knowledgeable sources indicate that the Ministry will try to be cautious in the coming weeks, aware of the discontent that its involvement in the financial operation of the year has caused in some sectors. Including the European Commission, which, according to the specialized agency MLex, expects the Executive to align its final decision with "that of the competent authorities," given the risk that its decision to intervene as an arbitrator in the operation could end up damaging some pillar of European regulation such as the free movement of capital.

The move was expected in the market, especially after the unprecedented public consultation launched on May 5, which would have served to reinforce the Government's arguments against the Basque bank's offer. A form that Cuerpo defended as "useful" for making his decision. "The public consultation has been useful to gauge the pulse of civil society; there has been a good response, and this qualitative assessment points to the existence of reasons of general interest that may be affected by the operation," defended Cuerpo.

At this point, the market assumes that the Council of Ministers' decision will be to toughen the commitments already made by BBVA, likely with measures that could affect - as inferred from the minister's words - the forecast of job cuts and branch closures, which also factor into the possible synergies managed by BBVA, where they insist that "the operation is good for the general interest of Catalonia, Spain, and Europe."

"BBVA has made unprecedented commitments in the Spanish financial sector that make the operation even better for families, freelancers, SMEs, and companies; the union with Sabadell is a growth project that will allow the combined entity to increase its financing capacity to companies and households by an additional 5 billion annually," insist sources from the Basque bank.

For its part, Banco Sabadell is limited to insisting that it remains focused on "creating value" independently. "We have a solid and credible future project with a presence in stable markets, and we are fully convinced that our independent strategy will generate greater shareholder remuneration sustainably and will allow our customers to have better service quality." More forceful have been the Association of Minority Shareholders of the entity, pointing out that "this decision confirms the extraordinary complexity of an operation that transcends the limits of banking competition and reaches issues of a social nature."

The Executive has made its rejection of the operation clear almost from the beginning, in an atmosphere clouded by political tension due to the reluctance that both coalition members and Sumar, as well as parliamentary allies like Junts, have shown towards the possible union of the two banks. The former, due to its impact on employment, branch closures, and financial inclusion. The latter, in addition, due to the offense that the disappearance of Sabadell would represent for Catalan society, as well as the loss of decision-making power it would imply for the region, exacerbating the centralism of Madrid, as Catalan businessmen have criticized in recent weeks.

The political weight on this business operation will be felt especially in the role that Junts can play in the final decision, following the controversy over the favorable vote for the operation by the party's representative in the CNMC, Pere Soler, despite the group having expressed opposition to the operation. "I think the Government expected more support from Junts, so we think the public consultation has also been a way to buy time to negotiate with the formation," points out a senior executive in the financial sector, who also points to the importance of Sabadell's decision to return to Catalonia earlier this year in this process. "The thought is, if you give me - for example - Budgets, Sabadell is not bought; if you don't give them to me, I won't confront the ECB, which has a great interest in the operation going through."

Parliamentary arithmetic will, therefore, be decisive in the final resolution of the Government, which cannot prohibit the takeover bid but can impose new requirements that make it less attractive for BBVA. It could veto the merger, a decision that both BBVA and Banco Sabadell hope to know before the acceptance period for shareholders opens, so they have all the information on the table.

If the offer goes ahead, the turn would pass to the National Securities Market Commission (CNMV), which is the one that must approve the operation's prospectus. With new conditions or - somewhat less likely - without them. The latter option was the one taken in 2011 for the merger between Antena 3 and La Sexta when the requirements imposed by Competition were relaxed based on criteria of general interest. But it is logical that they are maintained or toughened; yes, at levels acceptable to BBVA.

Sector sources assure that the institution already has the document well advanced, although its decision was to wait for Competition first and the Government later, so that all the information is recorded in it. If everything goes as planned and Moncloa exhausts the deadlines, that prospectus will be validated after June 27, and a few days later, the acceptance period that Spanish law allows to be between 15 and 70 days would begin. However, the US SEC raises that minimum period to 30 days. A factor that BBVA will take into account as it prioritizes avoiding that voting period occurring in August, during the peak summer season.