The Spanish government has approved BBVA’s hostile takeover bid for Banco Sabadell but as I anticipated in an earlier Truth on the Market post, it did so while imposing stringent conditions. Both banks will be required to maintain separate legal identities, management, and operations for at least three years, potentially extendable to five. These conditions effectively delay the merger’s synergies (cost reduction, unified governance, scale efficiencies) and raise questions about the government’s legal authority to impose such constraints.
I noted in my previous post that the government could execute a form of indirect intervention through conditions so demanding that the operation would become unfeasible. What was then a hypothesis has now materialized in all its starkness. The decision, contained in a lengthy 25-page document, is light on technical or legal findings and heavy on unsupported assertions, circular justifications, and conditions that are difficult to reconcile with the principles of legal certainty and proportionality.
Justified with appeals to vague notions of the “public interest,” the decision lacks a clear legal basis under the Spanish Competition Act. Notably, the National Commission on Markets and Competition (CNMC) had already approved the merger with commitments proposed by BBVA. The additional conditions imposed by the government appear to overstep its authority—potentially rendering them unenforceable.
A ‘Yes’ that Means ‘Not Yet’
While the decision allows BBVA to launch its takeover bid, the firm will not be able to integrate, absorb, or even operationally manage Sabadell for at least three years. Both entities must remain separate, with their own brands, offices, policies, and differentiated structures, all under governmental oversight. This undermines the very logic and economic rationale of the purchase. In effect, BBVA is allowed to acquire Sabadell while pretending it hasn’t. Can this truly be called a “takeover”? The justificatory apparatus is as excessive as it is incoherent.
The decision also breaks with one of the pillars of economic law: the requirement of proportionality in all public intervention. Here, instead of a balance between ends and means, a list of obligations is imposed that seem justified only by the desire to condition the outcome, not by the rigor of technical analysis.
The government’s chosen enforcement mechanism entrusts compliance oversight to the Secretariat of State for the Economy, a political body without technical independence or enforcement experience. This reflects a cosmetic, rather than operational, approach to regulatory control and enforcement. No specific sanctions or consequences are established in case of noncompliance with the conditions imposed, as the government would seemingly rely on the supposed good faith of the parties involved.
It’s a system designed more for symbolic reassurance than credible supervision, reinforcing the impression that the government’s objective was to appear assertive without establishing a legally robust framework. In fact, it is not even clear whether, when the three-year standstill expires, anyone within the administration will be positioned (or inclined) to evaluate what BBVA has done in the meantime.
In sum, the government’s decision represents a serious deviation from the principles of legal certainty, proportionality, and institutional integrity. By imposing conditions that effectively nullify the operation, all while maintaining the appearance of authorization, the decision sets a dangerous precedent that could have long-term negative consequences for the Spanish economy and investor confidence.
When Overreach Backfires
Upon first reading the government’s decision, my instinct was to suggest that BBVA should refrain from proceeding with the acquisition and instead challenge the conditions in court. But I was mistaken to assume that the government had torpedoed the deal.
While procedurally coherent, contesting the conditions through litigation would have dignified a resolution that, on substance, is so poorly grounded—legally and institutionally—that it may not merit formal engagement. In fact, the very analysis I laid out pointed to a clearer, bolder conclusion: BBVA should proceed with the takeover, not in defiance, but in disregard of a government intervention so lacking in enforceability, internal consistency, and regulatory legitimacy that it can—and perhaps should—be treated as legally irrelevant.
Indeed, that’s essentially what BBVA has chosen to do. Rather than challenge the government’s position in court, BBVA has decided to move forward with its public offer. The reason? The government’s position—couched as a condition that BBVA should act as if it had not acquired Sabadell—may be so legally unfounded and practically unenforceable that ignoring it is the most rational strategy. Going ahead with the transaction signals confidence that the government’s conditions may not hold legal weight.
Cleverly, BBVA may be reframing the government’s intervention for what it likely is: a nonbinding political gesture. If no regulator has the tools to block the transaction on substantive grounds, and if the government has stepped outside its legal powers, then there may be no need to fight—only to proceed.
This strategy carries some risk, especially reputational. But it also exposes the deeper institutional flaw in how the Spanish government handled the case. In attempting to use informal power to impose non-negotiable outcomes, it may have compromised its own ability to shape the transaction at all.
BBVA’s approach reflects more than legal calculation; it reflects political timing. Given the instability of the current coalition government and the likelihood of a turnover in coming months, the probability that any enforcement attempt will survive politically is slim. The message is clear: wait out the noise and proceed when the institutional memory fades.
That said, BBVA’s bold strategy is not without external constraints. Even if the government’s objections can be legally disregarded and politically outlasted, the final test may lie with the market. Sabadell’s board has not stood still: it has moved quickly to complicate the transaction by announcing a €2.5 billion extraordinary dividend and the sale of its UK subsidiary TSB—actions that aim to increase shareholder loyalty, reduce BBVA’s post-merger room for maneuver, and alter the economic calculus of the deal.
If these measures succeed in rallying shareholder resistance or making the target less attractive, the transaction could falter not in the courtroom or in cabinet meetings, but in the boardrooms and trading floors where credibility is ultimately priced. In that sense, the Spanish government’s overreach may be legally irrelevant yet economically consequential—an irony that BBVA is surely factoring into its long game.
A Lesson for Other Jurisdictions
Spain’s handling of the BBVA/Sabadell merger offers a cautionary tale. Government interventions that are framed in formal terms—but rest on vague standards and lack clear legal proportionality—risk being perceived as procedurally legitimate, while substantively hollow.
Political vetoes disguised as “soft” conditions may ultimately be disregarded, not because they are overtly unlawful, but because they fail to meet the standards of legal certainty and enforceable governance. By issuing objections that are more rhetorical than binding, governments risk teaching firms that the safest path is not negotiation or appeal, but quiet circumvention.
At a time when many jurisdictions are expanding regulatory scrutiny of mergers—especially in sectors like banking, tech, or defense—the Spanish example shows that overreach can backfire. If governments want to shape market outcomes, they must do so transparently, within their competences, and in ways that withstand legal challenge.
Indeed, there are precedents of governments attempting to interfere in corporate transactions only to be ignored or quietly bypassed by the parties involved. In Italy, Vivendi steadily acquired a stake in Mediaset, despite fierce political opposition and a bespoke legislative maneuver aimed at blocking it. The company pursued its strategy through EU legal channels and ultimately prevailed, highlighting the limits of domestic regulatory overreach in an integrated legal space. Similarly, in the UK, Kraft ignored political promises made during its takeover of Cadbury, shuttering local operations soon after the acquisition. The government had no legal tools to stop it and was left politically exposed.
These cases illustrate a broader risk: that if governments rely on symbolic interventions, rather than enforceable legal instruments, they may not only fail to control outcomes—but also weaken their own institutional authority in the process. Because otherwise, they may end up speaking only to themselves.
