Banco de Sabadell (SAB) Status Update summary

Board response and rationale

• The board unanimously rejected the hostile tender offer, citing fundamental undervaluation, value destruction for shareholders, and stronger future prospects as a standalone entity.

• The offer is based on unrealistic synergy assumptions, significant execution risks, and uncertainties regarding merger approval and future synergies.

• Current offer terms are less favorable than the original proposal, with a lower stake for Sabadell shareholders, loss of fiscal neutrality for Spanish investors, and tax inefficiencies for retail shareholders.

• There is widespread opposition from unions, political parties, business associations, and retail shareholders, raising execution risks and concerns about market concentration.

• Previous merger proposals from BBVA were rejected, with Sabadell outperforming BBVA since.

Standalone performance and value creation

• Sabadell has outperformed peers and BBVA, with a 94% share price increase since the offer and analyst target prices rising 86%.

• Guidance projects return on tangible equity rising from 14.5% to 16% by 2027, with mid-single-digit book growth and cumulative shareholder remuneration of €6.3 billion (37% of market cap) between 2025-2027.

• Sabadell has a strong track record of exceeding guidance and executing value-creating transactions, such as the TSB sale and extraordinary dividend.

• Standalone strategy is expected to generate greater value and higher dividends than integration.

• Shareholders who do not accept remain with a liquid, publicly traded stock.

Upside potential and valuation

• Sabadell's stock trades 11% above the offer price, and its fundamental value is considered 24%-37% higher than the offer, with peer-based and regression models supporting a significant premium.

• Precedent transactions in the sector have seen control premia of ~40%, much higher than the current offer.

• The offer is below current market price, and acceptance would mean a loss of value (around 10% as of 10 September).