The game of cat and mouse

Since the government revealed, exactly a week ago today, the conditions it was imposing on BBVA to obtain the green light and move forward with the takeover bid for Sabadell, the two banks have engaged in a thrilling game of banking and financial cat and mouse. Last Tuesday, BBVA informed the stock market regulator, the CNMV, that it was reviewing the Ministry of Economy's demands before deciding whether to go ahead with the operation.

Despite this, it was quite clear from the outset that Carlos Torres would consider it dishonorable to withdraw before reaching the real battlefield: the response of Sabadell shareholders to his offer. Yesterday, when it was already clear that Sabadell was going to close the sale of TSB, he took the step of announcing it publicly.

It is unrealistic to think that BBVA can approach current owners with a lower offer.

Josep Oliu, the president of Sabadell, for his part, was doing the same by embarking on the sale of the British subsidiary, TSB. Strictly speaking, although the banker had already received proposals many months earlier, he ruled out taking the final step until he was clear that BBVA would not be intimidated by the government's decision.

However, Oliu still had another trick up his sleeve. He hadn't revealed what he would do with the proceeds from the sale, which, incidentally, was a much larger amount than initially forecast. Essentially, he had two options. One was to distribute as much as possible as dividends to his shareholders, the most direct method to discourage them from participating in the takeover bid. The bank continued to offer growing dividends and promised, through practical action, to reward its investors' loyalty. The other option was to save the money, bolster its finances, to prepare for the corporate transaction, the merger, which he will almost certainly have to undertake if he manages to survive the takeover bid. While BBVA remained silent, neither did Sabadell.

Read also

Once it's clear the takeover bid is moving forward, Oliu must include the proposed dividend distribution on the agenda for the extraordinary meeting to approve the sale of TSB. This concludes this latest episode of the cat-and-mouse game. It's not over yet, by the way.

Now it's up to Torres to unveil his financial offer. It must encompass contradictory aspects. On the one hand, his strategic interest in Sabadell, something that yesterday's decision to move forward clearly demonstrates. It's an invitation to raise the price he's willing to pay.

On the other hand, the reality that both the government's measures—no staff or office cuts, no talk of a merger—and the sale of TSB and the withdrawal of the dividend, which Sabadell's current shareholders will now be entitled to, would force it to lower its bid. But, of course, that would be tantamount to abandoning the operation. It's unrealistic to think it can approach the current owners of the Catalan bank with a lower offer than the one already announced. A situation aggravated by the uneven performance of the two banks' shares on the stock market, which has made that initial offer less attractive. The game continues.