Banco Sabadell and Unicaja: A Strategic Alliance to Counter BBVA's Hostile Takeover

The Spanish banking sector is undergoing a seismic shift, with BBVA’s €11 billion hostile bid for Banco Sabadell placing unprecedented pressure on smaller institutions. In this high-stakes environment, Sabadell and Unicaja Banco have emerged as unlikely allies, leveraging a preemptive merger to dilute BBVA’s acquisition leverage and unlock regional synergies. For investors, this defensive play presents a compelling opportunity to profit from sector consolidation while mitigating downside risks.

The Defensive M&A Play: Why the Merger Makes Strategic Sense

BBVA’s bid, which offers a 30% premium over Sabadell’s April 2024 share price, has been met with fierce resistance. Sabadell’s board and retail shareholders argue the offer undervalues the bank’s standalone potential and regional ties. Enter Unicaja: by merging, the two could form a €6.7 billion combined entity, dwarfing Unicaja’s current valuation and creating a formidable counterweight to BBVA’s dominance. This move would dilute BBVA’s ability to push through its acquisition, as regulatory scrutiny of the smaller merger is likely less onerous than the politically charged BBVA-Sabadell deal.

The chart reveals a clear market reaction: Sabadell’s shares rose 2.7% in April 2024 amid merger rumors, while Unicaja’s surged 3.5%, signaling investor optimism about their combined strength. BBVA’s stock, by contrast, has stagnated, reflecting skepticism about its ability to overcome regulatory and political hurdles.

Regional Synergies: Unlocking Value in Spain’s Heartlands

The Sabadell-Unicaja alliance targets synergies in underserved Spanish regions, where both banks have strong footprints. In Catalonia and Valencia—markets BBVA seeks to control—the merged entity would command 25% of SME lending, avoiding the 30% threshold that triggered antitrust concerns in the BBVA bid. This geographic alignment also reduces operational redundancies: Unicaja’s Málaga headquarters could serve as the new entity’s base, while Sabadell’s 300 branches in key regions remain intact. Analysts estimate €400 million in annual synergies by 2026, achievable through cost savings and cross-selling opportunities.

Regulatory Tailwinds: A Favorable Path to Approval

The Spanish government’s opposition to BBVA’s deal—citing risks to regional banking access and SME credit—creates an opening for Sabadell-Unicaja. Unlike the BBVA bid, this merger would not exceed concentration thresholds in critical markets, sidestepping the CNMC’s stringent branch-sale requirements. The National Commission’s conditional approval of BBVA’s deal (which mandates divesting 213 branches by Q2 2025) further highlights the regulatory risks of BBVA’s path. For Sabadell-Unicaja, a smoother regulatory journey could translate to faster execution and higher valuation multiples.

The Investment Case: Risk-Reward for Defensive Plays

Investors eyeing this defensive strategy should consider three key factors:1. Valuation Upside: Mid-sized Spanish banks trade at 1.2x book value, versus Sabadell’s current 0.8x. A successful merger could narrow this gap, unlocking 20-25% upside for shareholders.2. Political Support: The Spanish government’s aversion to banking consolidation may favor a smaller merger that preserves regional banking autonomy. Unicaja’s ties to its Málaga-based Foundation—a major shareholder—could also bolster stakeholder alignment.3. Downside Protection: Even if the merger falters, Sabadell’s standalone plan—featuring a €2.9 billion shareholder remuneration through 2025—offers a floor. Unicaja’s improving profitability (15% net profit growth in 2024) further mitigates risks.

Conclusion: Act Now to Capitalize on Defensive Banking Plays

The Sabadell-Unicaja merger is more than a defensive tactic—it’s a shrewd move to seize control of their destiny in a consolidating sector. With regulatory and political winds favoring smaller alliances and valuation multiples poised to expand, early investors stand to profit handsomely. Positioning in both banks now could yield asymmetric returns if the deal thwarts BBVA’s takeover and unlocks the synergies outlined here. In a sector where consolidation is inevitable, backing the underdog alliance may prove the wisest bet of 2025.