BBVA’s Bold Play for Sabadell: Can Remedies Overcome Regulatory Hurdles?

The Spanish banking sector is on the brink of a transformative merger, as BBVA’s hostile takeover bid for Banco Sabadell inches closer to resolution. After months of regulatory back-and-forth, CEO Onur Gönül has doubled down on the deal, insisting that newly proposed remedies will quell competition concerns and clear the path for final approval. But with the Spanish government’s objections lingering and structural risks still unresolved, investors are left to weigh whether the potential rewards justify the risks.

The Remedies at the Heart of the Deal
BBVA’s latest proposals to Spain’s National Commission for Markets and Competition (CNMC) aim to address concerns about anti-competitive dominance in key regions like Catalonia and Valencia, where combined market share for retail banking products exceeds 30%. The core commitments include:

1. Preserving SME Credit Terms: Maintaining existing loan conditions for small businesses and self-employed clients in high-share regions for three years—extending an earlier 18-month pledge.
2. Extended Working Capital Support: Guaranteeing three years of access to liquidity for Sabadell’s SME clients, ensuring no abrupt pullback in credit lines.
3. Credit Volume Guarantees: A promise to retain lending levels for businesses reliant solely on either bank’s financing.

These behavioral remedies, while not requiring asset sales, are designed to reassure regulators that the merged entity won’t stifle competition in vulnerable markets. BBVA has framed this as a strategic necessity to compete in Spain’s low-interest-rate environment, where scale is critical.

The Regulatory Gauntlet Ahead
Despite the progress, hurdles remain. The CNMC’s Phase II investigation, launched in late 2024, has yet to conclude, and Spain’s government continues to voice concerns about the deal’s impact on competition. While the CNMC lacks the authority to block the merger outright, its approval is contingent on BBVA’s compliance with remedies—and its willingness to accept stricter terms.

One looming deadline is the Q2 2025 requirement to divest 213 remaining branches in Spain (300 were sold to CaixaBank earlier). Failure to meet this could trigger penalties or even unwind the deal. Meanwhile, the European Commission’s scrutiny under the Foreign Subsidies Regulation (FSR) concluded in late 2024 without blocking the deal, though specifics of its findings remain undisclosed.

Shareholder Dynamics: Premium vs. Principle
Sabadell’s board has consistently opposed the bid, arguing the 30% premium over April 2024 prices (rising to 50% vs. a 90-day average) is insufficient and that structural divestitures—not just behavioral pledges—are needed to preserve competition. CEO César González-Bueno has also highlighted Sabadell’s standalone value, including a €2.9 billion dividend commitment through 2025, to persuade shareholders to reject the offer.

Yet investor calculus may favor BBVA. The merger would create a €1 trillion banking giant with €850 million in annual synergies, positioning it to dominate Spain’s retail banking sector and better weather low interest rates. The adjusted exchange ratio—1 BBVA share for every 5.0196 Sabadell shares—accounts for dividends paid in late 2024, maintaining economic parity for shareholders.

The Bottom Line: A Risky Gamble with High Stakes
The BBVA-Sabadell deal hinges on three critical factors:
1. Regulatory Approval: The CNMC must finalize its Phase II review without imposing costly structural remedies, while branch divestitures must be completed by mid-2025.
2. Shareholder Buy-In: Sabadell’s board may lose its battle against the premium, especially if BBVA’s synergies materialize.
3. Political Posturing: Spain’s government cannot legally block the deal, but its rhetoric could spook investors or delay approvals.

For now, the odds favor the merger’s success. The CNMC has already signaled willingness to approve behavioral remedies, and BBVA’s stock has outperformed peers by 15% since the bid was announced, reflecting investor optimism. However, execution risks—branch sales, regulatory delays, and Sabadell’s shareholder resistance—remain material.

If BBVA can navigate these hurdles, the merged entity will dominate Spain’s banking landscape, leveraging economies of scale to survive in a low-margin environment. But failure could leave both banks vulnerable to fragmentation and declining profitability. Investors should monitor the CNMC’s Phase II ruling and the Q2 branch divestiture deadline as key inflection points. For now, the bet is on BBVA’s ability to turn regulatory concessions into shareholder value.