EU to examine Spanish government’s handling of BBVA takover bid for Sabadell

The European Commission is examining the “compatibility” of the Spanish government’s handling of BBVA’s hostile takeover bid for Banc Sabadell with European legislation.

The news comes after Spain’s economy minister, Carlos Cuerpo, announced on Tuesday that the bid would be referred to the cabinet, citing “reasons of general interest other than competition concerns.”

Olof Gill, spokesperson for Economic Security, Trade, Financial Services, UK relations, and Customs for the European Commission, stated in general terms, that with the approval of the European Central Bank and the national competition authority, which in Spain’s case is the CNMC, “there’s no basis to block an operation through a discretionary decision by a national government.” 

Although Gill refrained from commenting on the Sabadell case specifically, other EU sources said they see “no reason” for the Spanish government not to follow the lead of the CNMC.

On Wednesday, Cuerpo expressed confidence that “there will be no conflict” with Brussels regarding the matter.

The economy minister also defended the compatibility of Spanish legislation with EU law, emphasizing during a radio interview with Spanish radio that “we are very respectful of the legal framework.”

Cuerpo also stressed that the government is following “step by step” what the law allows and that they will carry out “a very grounded” assessment of the operation.

“If we impose any new conditions, they will always be proportionate,” he said.

Reasons behind referral

On Tuesday, the Spanish Economy Ministry pointed to issues such as maintaining regulatory objectives in the sector, protecting workers, ensuring territorial cohesion, promoting research and technological development, and achieving social policy goals.

In making its decision, the ministry took into account information gathered during the public consultation.

In fact, in the coming days, a report will be released containing the opinions gathered during this process – an unprecedented move during a takeover bid.

The economy ministry revealed its decision after markets closed on Tuesday, in order to minimize the impact on the stock prices of the two banks. BBVA closed up +0.82%, while Sabadell closed with an increase of +0.14%.

Ministries request referral

Five ministries requested the takeover bid be referred to the cabinet since the Spanish government received the case file from the CNMC (National Commission on Markets and Competition).

In statements to the media, economy minister Carlos Cuerpo said that the government's internal analysis concluded that "further monitoring of the potential impact of the deal is necessary, on vital elements for the economy, such as employment protection, financial inclusion, and territorial cohesion."

The cabinet now has 30 calendar days to decide whether there are reasons of general interest that justify imposing additional conditions on the takeover bid.

"This is not about tightening or loosening the conditions," Cuerpo said, "but simply considering whether there are general interest concerns beyond competition concerns that justify additional restrictions."

Cuerpo also stated that there was "a strong response" to the public consultation launched by the government.

Final decision expected by late June

If the cabinet uses the full review period, its decision is expected around Friday, June 27.

The Spanish government has several options: it can uphold the resolution issued by the CNMC at the end of April, or add further conditions justified by reasons of general interest.

In any case, the government cannot block the takeover outright, but it can impose such strict conditions that BBVA may withdraw its offer. The government can veto a merger.

If the takeover reaches the voting stage, BBVA can still improve its offer, although its executives have publicly said they don't plan to do so.

The outcome is unlikely to be finalized before the end of the summer.
 
BBVA last week publicly stated that the takeover should not be escalated to the Spanish government, adding that the public consultation was "unnecessary" and that there was "a lot of unfounded fear."

In contrast, the Catalan business community has expressed its opposition to the takeover from the outset, sending a letter to Spanish PM Pedro Sánchez urging him to block the deal.

Catalan President Salvador Illa also stated explicitly that he would prefer the deal, which would see a Basque bank take over a Catalan one, not to go through.