Take 5 and come back tomorrow (28/11/24) Markets Budget GRF TLGO BBVA SAB

None of what follows is investment advice.

Market environment: Tariff focus – (Asia-Pacific markets declined with European and US futures up) – Asia-Pacific markets declined as fears regarding US tariffs offset hopes for additional stimulus in China. European and US futures point up.

Response to the crisis: Be realistic, demand the impossible – (The Government accepts that it will not be able to present the 2025 budget draft until after January 6th (Cinco Dias p22)/The EC demands from Spain an additional €4.5bn in budget adjustments (Cinco Dias p23) – Given the poor recent government track record for approval of key pieces of legislation, including the Tax Reform package, presenting and approving a budget draft in the short-term would seem an ambitious challenge. Much the same seems to apply to demands for budget adjustments to a budget that faces significant obstacles to approval given the fragmented and often contradictory parliamentary support. The EC has shown significant flexibility when dealing with Spain. But there must be a limit.

Grifols: Insiders know – (The share price collapses as Brookfield gives up on presenting a bid (Expansion p3) – The fall in the share prices is a reflection of the disappointment over the lack of a bid. However, the impact may be longer lasting, as what this implies is that a potential bidder with “inside” knowledge due to the participation of the founding family in the bidding vehicle, the capacity to restructure Grifols after completion of the bid and with the benefit of a 4-month due diligence period, cannot come up with a purchase price of over €10.5/share. Analysts will have to explain why their valuation for the stock is substantially higher.

Talgo: If anyone asks, you don’t know me – (Trilantic se abre a negociar con Sidenor la venta de su participación del 30% de Talgo por debajo de 5 euros/acción (El Economista p9) – Apparently the Pegaso holding company that owns c.40% of Talgo and is shared by Trilantic and the Oriol and Abello families is to be wound down. That would allow Trilantic to sell its stake without forcing a bid for the minorities. Third parties (including the Polish government-owned Pesa and/or the Basque regional government/Basque savings banks foundations/Central government) could then buy out the rest of the “core shareholders” separately. All of this assuming that the sellers accept a lower price than that offered by Magyar Vagon in its past failed bid and the Stock Exchange Commission accepts that they are not acting in a concerted manner. This would be, obviously, bad for the Talgo minority shareholders.

BBVA/Sabadell: Still moving – (Sabadell could complicate the BBVA bid if the shareholders approve a share buyback scheme (Expansion p15) -I was not aware that the requirement of “inaction” by a company object of a bid did not apply to share buybacks. These could complicate the BBVA requirement of over 50% acceptance via the creation of a relatively substantial treasury stock position. Sabadell usually holds its AGM in April, but it could be brought forward to March, at which point the Competition Authority may not have completed its phase 2 review of the bid and, thus, providing time for the buy back to take place.