The world's largest voting advisor warns of regulatory uncertainty over BBVA's takeover bid for Sabadell

The world's largest proxy advisor, Institutional Shareholder Services (ISS), has warned of the regulatory uncertainties surrounding the hostile takeover bid launched by BBVA for Banco Sabadell. The transaction is pending approval by the National Commission for Markets and Competition (CNMC), which in November decided to extend the analysis to a second phase and its final decision is about to be announced. The Government, which can extend the commitments and conditions (known in the jargon as remedies ) imposed by Competition, and finally the National Securities Market Commission (CNMV), will also have to make a statement. Likewise, this firm warns of the "repeated lack of support from the board of directors of Sabadell" for the offer.

The ISS report specifically refers to the fact that the offer has not yet received the green light from either the CNMC or the CNMV, although it has received the green light from many other regulators, such as the European Central Bank (ECB). It also reflects that some members of the Government “have expressed their concerns” about the operation. The voting advisor met with the bank's top management on December 4, a few weeks after the CNMC decided to extend the analysis of the takeover bid to a second phase.

The comment on the takeover bid is limited to the bank's need to submit the capital increase to a vote of its shareholders again in order to face the proposed share exchange with the owners of Sabadell. The bank called an extraordinary meeting on July 5 last year to submit to a vote of its shareholders the authorization to the board of directors to issue these new shares. This approval lasted one year, until July 5, 2025, a more than sufficient period, according to BBVA's initial calculations, for the transaction to be fully completed. However, the CNMC's decision to raise the analysis to a second phase thwarted the schedule proposed by the Basque bank and substantially extended the deadlines.

BBVA is now forced to submit this measure to the board again, with the aim of obtaining approval by March 2026. The approval of this matter at the July meeting was 96%, with a quorum of 70%, so there is no doubt that the shareholders will vote against it. Nor does ISS recommend a vote of punishment on this matter.

In fact, the proxy advisor advises the shareholders of the bank led by Carlos Torres to support all the points on the agenda, including the re-election of Torres himself as chairman and of the CEO, Onur Genç. With regard to these appointments, apart from that of Connie Hedegaard as independent director, he has not detected any “material uncertainties”, given that they comply with the standards both in the size of the board of directors and the majority of independent directors, the composition of the audit committee, the separation between the appointment and remuneration committees, the absence of directors who are in the top management of many other companies and the presence of more than 40% of directors being women.

The report, however, does warn about the bank's indictment in the Villarejo case, for the alleged irregular hiring of the retired commissioner. This is the seventh consecutive year, since 2019, that this issue has been raised, although it clarifies that "there is no evidence that the board of directors has not fulfilled its fiduciary duties in this matter." It also reports on the procedural progress of the case, such as the end of the investigation and the judge's decision to continue the proceedings against the bank.

Regarding the remuneration policy for executives - one of the most controversial issues at shareholders' meetings - ISS supports the level of transparency and the fact that there are no deviations from the financial objectives to which the salaries of the top management are linked. However, it does state that the amount of remuneration is under scrutiny, as well as stating that the bank only partially complies with the recommendations for a balance between short- and long-term bonuses. According to the information sent to the regulator, Carlos Torres pocketed 7.93 million in 2024, 4% more. Genç, for his part, earned 7.32 million euros, 9.28% more than in 2023.

KBW: “BBVA will withdraw the offer if the CNMC includes structural remedies ”

Meanwhile, the market continues to await the CNMC's decision on the transaction, which is nearing its final phase. After the regulator sent its initial conclusions to the two banks, contained in the statement of facts, Sabadell presented its objections last week. The Catalan bank is proposing an amendment to the entire transaction and considers that the complexities of the SME business are causing the CNMC to change its analysis methodology. It is also rejecting BBVA's proposal for remedies , which only affect the bank's behaviour for a limited time, and is demanding structural conditions. That is, sales of parts of the joint business of both entities.

A KBW report suggests that introducing such measures will force BBVA to withdraw the offer. It also points out that, under current conditions, the offer makes both financial and strategic sense for the bank. It also points out that the bank has “limited room” to improve the offer with a cash component, so it believes that every 1 billion in cash would reduce the profitability of the transaction by one basis point.

As for BBVA, this report raises the target price of the share to 14.44 euros, compared to the previous 12.01 euros. As for Sabadell, this research firm has stopped assuming a scenario in which the bank is acquired by BBVA.