Evaluating the Attractiveness of BBVA’s Takeover Bid for Banco Sabadell for Shareholders

The proposed merger between Banco Bilbao Vizcaya Argentaria (BBVA) and Banco Sabadell has ignited intense debate among investors and analysts. At its core, the transaction represents a bold attempt to reshape the European banking landscape by combining two mid-sized institutions into a more resilient entity. Yet, the question remains: does this deal offer compelling value for shareholders, or does it risk repeating the pitfalls of past banking mergers?

Strategic Merger Valuation: A Premium with Promises

BBVA’s hostile bid for Banco Sabadell, valued at €17.4 billion, offers a mix of shares and cash, granting Sabadell shareholders a 13.6% stake in BBVA. This represents a 30% premium over Sabadell’s closing price in April 2024 and a 42% premium over its 30-day average price, significantly outpacing the average premiums of similar European banking deals in recent years [1]. The strategic rationale is clear: larger scale is seen as essential to absorb the fixed costs of digital transformation and to bolster lending to SMEs and self-employed individuals [1].

However, the valuation’s attractiveness is tempered by regulatory constraints. The Spanish government has mandated that the two banks remain legally separate for at least three years, delaying synergy realization from the original timeline to 2029 [1]. BBVA revised its synergy estimates upward to €900 million annually but now faces the challenge of justifying these figures against a backdrop of prolonged integration. This delay raises questions about the immediate value proposition for shareholders, particularly given the current market skepticism.

Shareholder Risk-Reward Dynamics: A Mixed Bag

The market’s reaction to the bid has been lukewarm. As of September 5, 2025, Sabadell’s shares traded at a discount of -8.76% to the offer price, suggesting investors view the deal as unattractive [2]. This underperformance contrasts with BBVA’s own financial strength: its P/E ratio of 8.9x and a market capitalization of €89.83 billion position it as a relatively undervalued player in the sector [3]. For Sabadell shareholders, the offer promises a 25% increase in earnings per share (EPS) compared to a standalone scenario, while BBVA shareholders could see a 57% EPS boost in the first post-merger year [1].

Yet, these gains are not guaranteed. Historical data on European banking mergers reveals a sobering trend: over two-thirds of deals fail to meet projected synergies due to integration challenges, cultural misalignment, and overpayment [2]. A PwC study notes that only 61% of acquirers achieve 90% or more of expected cost synergies, underscoring the gap between ambition and execution [4]. For BBVA, the risks are compounded by the regulatory separation requirement, which complicates cost-cutting and operational integration.

Lessons from the Past: A Cautionary Tale

The BBVA-Sabadell deal must be viewed through the lens of past European banking mergers. The 2015 Dow Chemical-DuPont merger, for instance, initially promised $1 billion in annual savings but ultimately led to a spin-off of three entities by 2019, illustrating the fragility of long-term synergy goals [5]. Similarly, the 2018 United Technologies-Raytheon merger saw a 25% share price drop post-announcement, reflecting investor doubts about integration complexity [5]. These cases highlight the perils of overestimating synergy potential and underestimating cultural and operational challenges.

For BBVA and Sabadell, the path forward hinges on meticulous integration planning. Research emphasizes that pre-acquisition evaluations of strategic and cultural fit are critical to success [6]. BBVA’s CEO, Onur Genc, has stressed the long-term value of the merger, but the company must now navigate litigation risks, client attrition, and operational delays—challenges that have derailed many a well-intentioned deal [1].

Conclusion: A Calculated Gamble

The BBVA-Sabadell merger is a high-stakes proposition. On one hand, it offers a compelling strategic vision: a larger, more scalable bank poised to tackle digital transformation and regulatory pressures. On the other, it faces significant hurdles in realizing synergies and maintaining shareholder confidence. For investors, the key lies in balancing the immediate discount in Sabadell’s shares with the long-term potential of a combined entity.

As the tender period unfolds, the market will likely test the deal’s resilience. Arbitrage opportunities, such as long positions in Sabadell and short positions in BBVA, may emerge as investors hedge against uncertainty [2]. Ultimately, the success of this merger will depend not just on the numbers but on BBVA’s ability to execute a seamless integration—a task that has proven elusive for many in the European banking sector.

Source:
[1] BBVA : Banco Sabadell Shareholders Can Now Join BBVA to Create a European Banking Leader [https://www.marketscreener.com/news/bbva-banco-sabadell-shareholders-can-now-join-bbva-to-create-a-european-banking-leader-ce7d59d9d88ff626]
[2] BBVA-Sabadell: Deal Launches Underwater, Arbitrage Still Asymmetric [https://www.smartkarma.com/insights/bbva-sabadell-deal-launches-underwater-arbitrage-still-asymmetric?utm_medium=feed&utm_source=RSS]
[3] Banco Bilbao Vizcaya Argentaria (BBVA) Stock Overview [https://simplywall.st/stocks/es/banks/bme-bbva/banco-bilbao-vizcaya-argentaria-shares]
[4] Creating value through M&A | Needles in a haystack [https://www.pwc.com/ph/en/publications/ph-columns/pwc-needles-in-a-haystack/creating-value-through-ma.html]
[5] 35 Biggest Mergers and Acquisitions in History [https://dealroom.net/blog/successful-acquisition-examples]
[6] Pre-acquisition evaluation of target firm and cross border acquisition performance [https://www.researchgate.net/publication/235675225_Pre-acquistion_evaluation_of_target_firm_and_cross_border_acquisition_performance]