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Corporate information 01 May 2024

BBVA proposes merging with Banco Sabadell to create a European leader

In a letter addressed to the Board of Directors of Banco Sabadell, BBVA states that merging the two entities would create the most compelling industrial project in European banking. In this sense, it highlights the benefits of the merger for both entities, their shareholders, employees, clients and the communities in which they operate.

Resultados BBVA - 2T2022

Firstly, the new entity would create one of Europe’s largest and most robust financial entities, boasting over one trillion euros in assets and serving more than 100 million clients worldwide, with the ambition of becoming the largest bank by market capitalization of the Eurozone.

The larger scale would allow the new entity to face the structural challenges of the sector in better conditions and reach a greater number of clients, efficiently addressing investment needs associated with digital transformation. The combined entity would be more solid and efficient, and a benchmark in the market by volume of assets, loans and deposits.

On the other hand, BBVA highlights the strategic fit and complementarity of both companies, with Banco Sabadell being the benchmark in Spain in the business segment and, like BBVA, a leading entity in digitalization and sustainability. In addition, Banco Sabadell's presence in the United Kingdom would add to BBVA's global scale and its leadership in Mexico, Turkey and South America. For all these reasons, the merged entity would be the best financial partner for families and companies, with a better product offering and a greater global capacity to accompany companies in their international expansion.

Ultimately, the capacity of the new entity to provide credit to the real economy would be amplified - with an estimated future impact of an additional 5 billion euros per year - as such contributing significantly to the process of transformation, innovation and decarbonization of the society. The creation of a stronger and more profitable entity would further support the society in the form of greater contribution via taxes and increasing and attractive shareholders’ distributions.

In this sense, BBVA also highlights its total commitment to Catalonia, a key market for both entities. From a position of greater strength, the merged entity would bolster its support for the business, cultural, scientific and social sector of Catalonia, through banking activity and the respective foundations. In addition, the new bank would have double operational headquarters in Spain, one of them in the Banco Sabadell’s corporate center in Sant Cugat, and would reinforce Barcelona's role as a European hub for the most innovative and disruptive companies in the world.

BBVA also shows its commitment to preserving the best talent and culture of both entities, and proposes several key measures: i) Formation of an integration committee with representatives of both organizations, in order to design the best integration process, leveraging the talent of both entities; ii) Respect, in all cases, the principles of professional competence and merit in the integration of the workforce, without the adoption of traumatic measures that singularly affect employees of one of the two entities; iii) Configuration of the management team of the merged entity with executives from both banks, once again based on principles of professional competence and merit, seeking to maintain proportionality based on the relative weight of the businesses; iv) Creation of an advisory council for Spain that would have institutional and commercial relevance and would include current directors and executives of both entities.

Regarding the governing bodies of the merged entity, BBVA proposes the incorporation to the Board of Directors, as non-executive directors, of 3 members of the current Board of Directors of Banco Sabadell, selected by mutual agreement, with one of them occupying a vice presidency position.

On the other hand, while the company name and brand would be those of BBVA, the joint use of both brands would be maintained in those regions or businesses in which it may have a relevant commercial impact.

Financial terms of the proposal: clear value creation for shareholders

In relation to the financial terms, the proposed exchange ratio is very attractive for Banco Sabadell shareholders: 1 newly issued BBVA share for every 4.83 Banco Sabadell shares, which represents a 30% premium¹ over the closing prices of April 29th; 42% on the weighted average prices of the last month; or 50% of the weighted average prices of the last three months. After the merger, Banco Sabadell shareholders would have a 16% stake in the resulting entity, thus additionally benefiting from the value generated by the operation.

The proposed merger would also clearly create value for BBVA shareholders. According to BBVA estimates, this transaction is accretive in earnings per share (EPS) from the first year after the merger, achieving an EPS improvement of approximately 3.5% once the savings associated with the merger are materialized. These savings are estimated at approximately 850 million euros before taxes. Additionally, the tangible book value per share would increase around 1% on the date of the merger. The operation would offer a high return on investment (ROIC² close to 20% for BBVA shareholders). All of this with a limited impact on CET1 of approximately -30 basis points³ at the time of the merger, while maintaining BBVA's attractive shareholder distributions’ policy.

In summary, the proposed merger generates value for all stakeholders: shareholders, employees, customers and society as a whole.

¹Premiums calculated on the exchange equation in the reference periods
²ROIC: 'Return on Invested Capital' calculated for 2026, considering the estimated savings from the merger and without considering any potential impact derived from the JVs. Formula used: [Incremental result for BBVA shareholders / impact on CET1 of the merger].
³Considering restructuring costs (estimated at approximately €1,450 million before taxes) and without considering any potential impact derived from the JVs.