(Bloomberg) -- Banco de Sabadell SA has rejected a takeover approach from Banco Bilbao Vizcaya Argentaria SA as too low. The bank’s chief executive officer says he’s certain his strategy can deliver more returns for shareholders.

“Our focus is performance, performance, performance,” Cesar Gonzalez-Bueno said in a conversation, speaking about his defense strategy. “Our share price has risen fivefold over the past four years and was up 60% year-to-date, before the proposal leaked.”

Since BBVA announced its all-stock offer, shares of Spain’s second-biggest lender have lost about 8%. Sabadell, meanwhile, is up 11%. 

While the divergence is driven largely by news of the takeover plans, it may render the proposal less appealing to Sabadell investors. And with a lengthy approval process in store before BBVA can take its offer to shareholders, Sabadell has the time to deliver on its own terms.

 

BBVA has ruled out making the bid more attractive, saying it offers an “exceptionally favorable premium” of 30% over Sabadell’s closing price before news of the takeover approach broke. That premium has now declined to below 10%.  

BBVA has said the proposal offers the chance of “further value creation” by giving Sabadell’s current shareholders a stake of as much as 16% in the combined entity. 

It will take about half a year before the tender formally opens for Sabadell’s shareholders, according to BBVA estimates. Various regulators have to approve the bid and BBVA’s own shareholders will get to vote on it too.

Sabadell’s second-biggest investor, Mexican billionaire David Martinez, supports BBVA’s offer, Bloomerg has reported.

In the meantime, the boost from higher interest rates that both banks enjoyed over the past two years is likely to level off. The European Central Bank is widely expected to start lowering its benchmark rate as soon as next month, potentially cutting into bank earnings. BBVA’s large emerging market exposure to countries such as Mexico, Argentina and Turkey remains a concern and is a source for potential downside for Sabadell shareholders.  

“Last year was the best year in the history of the bank and we are confident that Sabadell’s profitability will continue to increase,” Gonzalez-Bueno said when asked how much of a problem falling rates will create for the bank. 

He also said he’s “committed to distributing” €2.4 billion ($2.6 billion) in capital to investors through this year and next. Sabadell first made that pledge when it rejected the proposal on May 6. BBVA subsequently said it would take its offer directly to shareholders.

Among the regulators whose approval BBVA needs is Spain’s competition authority CNMC. The Spanish government, which has the power to veto a legal merger, has said it opposes the deal over concerns it would exacerbate concentration in its banking market. In Spain, Sabadell has more than 12% market share in lending to small and medium-sized companies while BBVA has 11.5%, according to a May press release. 

If Madrid doesn’t drop its resistance, BBVA could end up with a controlling stake in a bank it can’t consolidate, possibly upending its plans to save €850 million in costs.

(Updates with details throughout.)

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