BBVA BBVA Bilbao Vizcaya Argentaria SA

Why has BBVA launched this offer to Banco Sabadell shareholders?

The aim is ultimately to merge the two banks, to build a stronger, more competitive and profitable entity and erect a benchmark within the market in terms of assets, loans and deposits. The new bank will have greater scale, which will stand us in better stead to address the structural challenges posed by the financial sector, while efficiently making the necessary investments in digital transformation within an increasingly global sector.

The complementarity and the ability to generate relevant synergies make this transaction financially attractive for the shareholders of both BBVA and Banco Sabadell.

BBVA remains firmly committed to all the markets in which it operates, and from a position of strength it will intensify its support for businesses and for cultural, scientific and social projects. It will do this not only through its core banking activity, but also through its various foundations in Catalonia, the Valencian Community and the other regions where Banco Sabadell is present.

The transaction will also be positive for our other stakeholders.

Our customers stand to benefit from a unique value proposition, thanks to the synergies between both franchises, a wider range of products and the new bank’s more global outreach.

Employees will have access to new career and growth opportunities within an even more global entity.

The combined bank will be able to lend more to households and businesses (roughly €5 billion in additional lending per year) and to contribute to the public coffers via the taxes.

This will ultimately lead to greater economic and social progress.

Why is BBVA launching an offer to Banco Sabadell shareholders following the rejection of the SAB Board to a merger proposal?

In mid-April, BBVA’s Chair met with the Chair of Banco Sabadell to convey BBVA’s interest in resuming the talks that did not ultimately come to fruition back in 2020. They were asked to deliver a specific proposal on April 30, but

In accordance with European and Spanish rules and regulations on takeover bids, the decision on whether to accept does not fall to the board of directors of the target company, but rests squarely on the shoulders of its shareholders. Its board must comply with the neutrality rule, whereby it prevents any action (without prior approval from the general shareholders’ meeting) that might impede the success of the bid.

What makes the transaction attractive to Banco de Sabadell’s shareholders?

The offer represents a premium of 30 percent over the closing prices on April 29¹; of 42 percent² over the volume weighted average prices of the month prior to April 29; and of 50 percent² over the weighted average prices for the previous three months.

Assuming 100% uptake, Banco Sabadell shareholders would acquire a stake of approximately 16 percent in BBVA, benefiting from the additional value created at the merged entity.

Given the synergies expected to result from the combination of both entities (€850 million), earnings per share would increase by about 27³ percent for the shareholders of Banco Sabadell.

What’s the reason for the adjustment of the consideration being offered to Banco Sabadell shareholders who choose to take up the offer?

The adjustment was made to reflect the dividends paid out by both banks and was already envisaged in the terms of the offer made public on May 9, 2024. The aim is to ensure that the economic terms of the offer remain the same if the banks distribute dividends, which has been the case.

Thus, Banco Sabadell shareholders who accept the offer will receive one new share in BBVA and €0.29 in cash for every 5.0196 shares in Banco Sabadell that they hand over in exchange⁴. In other words:

The exchange ratio is now 1 newly issued share in BBVA for every 5.0196 shares in Banco Sabadell⁵ to reflect the impact of the dividend paid out by Banco Sabadell (€0.08 gross per share) on October 1, 2024.

Additionally, a cash payment of €0.29 is added for every 5.0196 common shares of Banco Sabadell, as a result of the dividend paid out by BBVA on October 10, 2024.

Why is the takeover being paid for in shares rather than cash?

Making the offer in shares protects the shareholders of both BBVA and SAB against any macroeconomic or external factors, thus aligning their interests.

Furthermore, an offer in shares allows Banco Sabadell’s shareholders to benefit from the extra value generated by the future integration with BBVA.

BBVA looks to the future with optimism, supported by its strategy of profitable growth and prudent risk management. By 2025, the bank expects to sustain profitability (ROTE) at levels comparable to those achieved in 2024 (20.1 percent as of September 30, 2024).

BBVA will continue to generate capital organically while maintaining the current distribution policy for shareholders, current and future ones, as well as a commitment to distributing any excess capital above the 12 percent⁶.

In any event, for those shareholders from Banco Sabadell who would prefer cash, they can have it immediately by selling the BBVA shares once they have accepted the offer. BBVA shares are very liquid.

What makes it an attractive deal for BBVA’s shareholders?

The financial terms are attractive for shareholders of both banks, given the potential for unlocking significative synergies.

Specifically, for BBVA shareholders⁷:

The increase in earnings per share⁸ will be gradual from the first year of the merger, increasing by 3.5% once the savings have been fully realized (in the third year following the merger).

Tangible book value per share will increase by approximately 1% on the merger date.

The return on incremental invested capital for BBVA shareholders (ROIIC)⁹ is approximately 20%, which is significantly higher than the cost of capital and compares favorably with other investment options, particularly with a potential share buyback.

Has Banco Sabadell been valued by an independent expert?

BBVA’s Board of Directors received advice from J.P. Morgan and UBS during the decision-making process, both leading investment banks with extensive experience in takeovers. In their reports, it is concluded that the consideration offered by BBVA to acquire all of the shares of Banco Sabadell is reasonable for BBVA from a financial standpoint and based on prevailing market conditions.

Why has the value of Sabadell shares approached the value of the offer presented by BBVA? Does that mean that the offer is less attractive?

From the moment that an acquisition transaction is announced, it is common for the share prices of the target bank to converge with the exchange price being offered, especially when the transaction will take place through share exchange.

This convergence does not mean that the offer is less attractive, but that the share price already incorporates the offer made to a large extent. In other words, in the absence of this offer, the share prices would be different.

It therefore makes sense to assess the attractiveness of the transaction by comparing the premium with the share prices prior to the announcement of the transaction (in this case, April 29th).

In this sense, BBVA’s offer implies a premium of 30 percent over the closing prices on April 29¹⁰; of 42 percent¹¹ over the volume weighted average prices

What negotiations and/or prior contact took place with Banco Sabadell before making the offer?

Our approach has always been friendly.

In mid-April, the BBVA Chair approached the Banco Sabadell Chair to explore a potential merger, based on the terms negotiated in 2020, but with a substantially better financial offer.

On April 30th, BBVA presented the written proposal for a merger to Banco Sabadell’s Board. Banco Sabadell rejected the proposal on May 6th.

On May 8th, BBVA’s Board of Directors agreed to present the offer, with the same financial terms presented to Banco Sabadell’s Board, directly to its shareholders in order to give them the opportunity to decide. This agreement by BBVA’s Board led to the announcement prior to the public offer published the following day,
May 9th.

What is the estimated impact of this transaction on BBVA’s CET1 ratio?

We expect a limited impact on CET1 of approximately -38 basis points assuming 100% uptake¹².

What are BBVA’s estimates for the restructuring costs associated with the merger of both banks, once the offer to purchase Banco Sabadell shares has been carried out?

Once BBVA has acquired a stake equal to or greater than 50.01 percent of Banco Sabadell’s share capital, BBVA intends to merge the two banks.

Restructuring costs associated to the merger would stand at approximately €1.45 billion before taxes, which will be recorded in the income statement on the year of the merger.

It is important to note that, unlike other market precedents, this transaction will involve lower restructuring costs / savings associated to personnel expenses. This is because both BBVA and Banco Sabadell have already undertaken significant network

optimization over the past few years. Most of the synergies are associated with savings in technology and systems costs, as well as other general administration expenses, with a lower associated restructuring cost.

What are the estimated synergies associated with the merger process?

The estimated value of the synergies associated with the merger of both banks stands at €850 million before taxes. Main concepts include:

Are you expecting any loss of businesses (i.e. negative revenue synergies) as a result of the transaction?

BBVA has not incorporated any positive or negative revenue synergies into the figures it has disclosed.

BBVA’s intention is to boost the growth of the combined bank, calculating a capacity to lend an additional €5 billion to families and businesses per year.

If the takeover bid for Banco Sabadell is ultimately successful, would it be possible to unlock the announced synergies while maintaining two independent legal banks, i.e. with no merger?

In a scenario in which the offer made to Banco Sabadell shareholders is a success, the operation will have received the green light from multiple authorities (including the Spanish competition regulator, the CNMC, the ECB, the Spanish financial markets regulator, the CNMV) and from the shareholders of BBVA and Banco Sabadell who take up the offer.

After that, BBVA’s intention is to carry out the merger of the banks. It feels that a scenario in which this does not occur is unlikely.

In any event, even without a merger, the operation remains attractive as most of the synergies would be achieved.

Do your calculations consider the cost of breaking up Banco Sabadell’s existing alliances?

BBVA has made an estimate, based on public information, of the potential cost of breaking up these existing alliances.

BBVA’s calculations include a financial penalty arising from the change of control in relation to Banco Sabadell existing alliances in the fields of pensions, bancassurance and payments, as well as the corresponding fair value adjustments.

In any case, once BBVA has all the information needed to make a sufficiently informed decision, it will begin a negotiation process with Banco Sabadell partners for each of the existing agreements, and make the best decision based on value creation criteria for shareholders and customers.

What impact will the transaction have on financial inclusion, i.e. on access to financial services in rural areas, among the elderly, etc.?

BBVA is committed to ensuring that no one is denied access to financial services. The bank will not leave behind any locality where it is the only bank with a presence.

In fact, in recent years BBVA and the financial sector have partnered closely with the Spanish Ministry of Economy to widen the availability of financial services to all communities and not leave anyone behind. Significant progress has been made in ensuring ongoing access to financial services in rural areas and for those aged over 60, among other achievements.

What impact will the transaction have on regions in which Banco Sabadell has a strong presence, such as Catalonia or the Valencian Community?

BBVA is fully committed and deeply rooted in the regions within its footprint, especially those where Banco Sabadell is most strongly present: Catalonia and the Valencia region. These are key markets where BBVA is set to intensify its support for business, arts and culture, science and the wider community through its own banking activities and through its non-profit foundations.

The new bank will have two operational headquarters in Spain: one at Banco Sabadell’s corporate center in Sant Cugat del Vallès (Barcelona) and the other at Ciudad BBVA, in Madrid.

Furthermore, the Sabadell brand will continue to be used alongside the BBVA brand in those regions or businesses in which doing so would make good commercial sense.

Finally, Barcelona’s role as a European hub for startups will be further enhanced by combining the projects and initiatives of both banks.

What does the approval of the capital increase at BBVA’s Extraordinary Meeting mean?

On July 5th, with 96 percent votes in favor, BBVA’s Extraordinary Shareholders’ Meeting largely approved the capital increase needed to cover the share exchange offered to Banco Sabadell shareholders.

This milestone marks a highly significant step needed to move forward in the most attractive project in the European banking sector.

The approval of the capital increase at the Extraordinary Shareholders’ Meeting was one of the conditions established in the acquisition offer made to Banco Sabadell shareholders (together with a minimum of 50.01 percent of Banco Sabadell shareholders taking up the offer and obtaining regulatory approval¹⁴).

What other authorizations does BBVA need to secure before the share exchange?

BBVA has already received two of the most relevant authorizations: the green light from the Prudential Regulation Authority (PRA) and the non-opposition from the European Central Bank, on Sept 3 and 5, respectively.

Everything is moving ahead according to plan and the next steps needed are the approval of the Spanish Competition authority (CNMC), the authorization of the Spanish financial markets regulator (CNMV) and the uptake of the offer by Banco Sabadell shareholders representing the majority of its share capital (more than 50.01 percent).

Does the operation involve any problems from a competition standpoint?

From BBVA’s standpoint, we do not see any competition issues resulting from the combination of both banks, as the businesses of BBVA and Banco Sabadell are complementary.

Analysis of the combined market share of both banks suggest that it will remain moderate on a national level in the most relevant segments, and BBVA would not be the leading actor. Specifically, the resulting national market share would be 22 percent for lending; 20 percent for deposits; and 17 percent for branches.

On both a national and provincial level, the combined market shares would not surpass those of previous bank mergers.

The integration of both banks would not exceed the market share thresholds established in EU competition guidelines (market share over 25 percent or an increase of more than 10 percent). .

In any event, market shares and concentration levels must always be viewed in the context of other equally important factors, such as the rapid pace of change, high competitiveness, low barriers to entry—which are now becoming even lower, in step with the increasing digitization of financial services—and customers’ ability to switch service providers at no cost. In fact, in terms of digitization, 85 percent of the interactions between banks and customers take place on digital channels.

The Spanish financial sector is highly competitive due to the significant competition from larger and smaller operators, including new players and fintech companies.

How is the transaction affected by Spain’s competition supervisor, the CNMC, opening a second phase of scrutiny?

BBVA remains confident in the potential value created by the transaction for both Sabadell and BBVA shareholders, as well as for society as a whole.

We expect the transaction to be approved within a few months, maintaining its full potential for value creation.

If this were not the case, in other words, if value creation were compromised, BBVA has the option to withdraw its offer.

BBVA will continue working closely with the CNMC to finalize the commitments and secure approval of the process as swiftly as possible.

When do you expect the bid to be launched?

Once CNMV approval is granted, the acceptance period for Banco Sabadell shareholders to respond to the exchange offer will be 30 calendar days, with the possibility of extending the deadline up to a maximum of 70 calendar days.

What period are you considering for the merger of both entities? What authorizations is the merger subject to?

We estimate that the merger will take between 6 and 8 months.

The merger requires the authorization of the Spanish Ministry of Economy, Commerce and Enterprise.

What do Banco Sabadell’s shareholders have to do and when?

Banco Sabadell’s shareholders must decide whether to exchange their shares in Banco Sabadell for shares in BBVA within the period indicated in the terms of the bid, once it has been approved by the CNMV.

Banco Sabadell shareholders wishing to take up the offer, should present in writing a statement of acceptance, within the terms of the acceptance, to the bank participating in Iberclear, where they have their shares in custody, either in person, or by electronic means or by any other means admitted by said entities.

Can any Banco Sabadell shareholder accept the bid or do certain requirements need to be met?

The bid extends to all Banco Sabadell shareholders.

What happens to those Banco Sabadell shareholders who decide not to take up the offer?

BBVA intends to press ahead with the merger between BBVA and Banco Sabadell as swiftly as possible following the settlement of the offer. The exchange ratio will be equivalent, insofar as possible, to the consideration proposed in the offer.

Banco Sabadell shareholders who choose not to take up the offer during the acceptance period will retain their shares in Banco Sabadell until both banks are ultimately merged.

As a result of the offer, the number of shares outstanding of Banco Sabadell in the hands of shareholders other than BBVA may fall significantly. Therefore, during the period (between the completion of the offer and the merger) in which Banco Sabadell remains a listed company, this situation may affect the liquidity of its shares.

If at least 90 percent of Banco Sabadell’s share capital accepts the offer, BBVA will exercise its squeeze-out right on the remaining shares of Banco Sabadell’s share capital that did not take up the offer, under the same terms as the offer, as adjusted to the new exchange ratio (one new BBVA share plus €0.29 in cash for every 5.0196 Banco Sabadell). If this were to occur, BBVA would become the holder of all (100 percent) of Banco Sabadell’s capital stock and Banco Sabadell would automatically be delisted.

As for the dividend, will Banco Sabadell’s shareholders receive less than they would if they retained their shares in that bank?

BBVA is proposing the combination of two great banks, so that together they can achieve more than they could hope to achieve by going it alone. In addition to the attractive premium received from the transaction, Banco Sabadell shareholders will

benefit from the increased capacity to generate earnings and the significant potential for synergies (€850 million gross annually once the merger takes place). Therefore, Banco Sabadell shareholders will benefit from the increase in earnings per share of approximately 27 percent.¹⁵

This higher earnings per share would also translate into sustainable dividends over time, as BBVA maintains its attractive shareholder distribution policy, which involves payouts of 40 to 50 percent of profit, with the possibility of combining cash dividends and share buybacks, as well as the commitment to distribute excess capital over 12 percent.¹⁶

What dividend policy will BBVA pursue following the settlement of the offer?

BBVA will continue to pursue its current shareholder return policy, whereby shareholders receive between 40 and 50 percent of the bank’s profits, with the additional option to combine cash dividends and share buybacks. Under its existing policy, BBVA has also pledged to pay out any surplus capital beyond 12 percent.17

What will happen to Sabadell’s customers, especially SMEs?

The purpose of the transaction is to complement our strengths with those of Banco Sabadell. The integration represents a clear commitment to SMEs. We want to combine our experience with Sabadell’s and together, build the best bank for all individual customers, businesses and SME clients.

BBVA remains firmly committed to further bolstering Banco Sabadell’s existing management model for small and medium-sized companies. In fact, barring a deterioration in its financial position, BBVA will maintain, for at least 12 months, the existing working capital facilities of all SMEs.

In what ways will the commercial offering improve for Sabadell customers?

Following the transaction, BBVA estimates that the resulting entity will be able to lend roughly €5 billion more each year to both households and businesses.

Customers of both banks will be able to benefit from a better value proposition, because the two franchises complement one another, the product range will become wider and the resulting bank will command a global reach.

Furthermore, Banco Sabadell’s customers also stand to benefit from a new network of branches and ATMs, with a greater presence across the country.

The increased scale of the new bank will pave the way for further investments in the development of new capabilities, resulting in a better and more innovative range of products.

The greater diversification and strength of the combined entity will make it more resilient to adverse macroeconomic events, making it more adept at supporting its customers when they need it the most.

In addition, Banco Sabadell enterprise customers will be better able to expand into wider international markets within the BBVA footprint. This will bring them fresh business opportunities and boost their potential for growth.