The British ‘fintech’ is worth 1,000 million pounds and BBVA would have to put 600 million to get the 61% that it does not own. Atom has hired Citi as an advisor for the process.
Carlos Torres, president of BBVA, must decide in the coming days if the Spanish bank makes a purchase offer for 100% of Atom Bank, or prefers to lose the veto rights on strategic decisions that it now has in this British digital entity, where he owns 39% of the capital.
The cost for BBVA of acquiring the 61% that it does not control could be around 600 million pounds (700 million euros), if the latest assessments of Atom Bank, which are around 1,000 million pounds, are met.
According to the Atom shareholders agreement, the Spanish bank has a controlling position so far, despite not having the majority of the capital. For example, BBVA may veto the appointment of the CEO, the approval of capital increases, the sale of assets or the merger of the British firm with another company. You must even give permission to other partners to sell your shares, also having preferential purchase rights. In addition, BBVA appoints three of the eleven directors of Atom Bank.
These rights were negotiated by the Spanish bank in exchange for boosting the growth of the entity by participating in three capital increases since 2014, investing 167 million pounds in total.
BBVA has a controlling position, although it does not have the majority of the capital
But BBVA can lose a large part of these rights in April 2019, unless a so-called “liquidity event for shareholders” occurs. This can come in two ways: an IPO of Atom Bank, something complicated given the bad start of the year for the sale offer activity in the London area, or a 100% purchase offer launched by BBVA and recommended by the council of the fintech entity.
Atom Bank has hired Citi to advise him in case an acquisition proposal arrives.
According to market sources, the other outstanding shareholders of Atom Bank (the Toscafund funds with 27% and Woodford Investment Management with 15%) are confident that BBVA will decide to make an offer for their shares. Woodford is needed to generate liquidity in its investment funds, in response to requests for reimbursement from clients in recent months.
In red numbers
But the decision of the Spanish bank is not clear. Atom Bank grows fast, but still generates losses. Since its launch in 2016, the entity has raised 1,400 million pounds in deposits and has made loans for 1,200 million pounds. The firm lost 52.6 million pounds in the year to March 2018. In addition, the uncertainty of Brexit clouds the visibility of the future of the British economy.
In its latest report to the US financial regulator, the Spanish bank warns that “a hard Brexit could cause a recession in the United Kingdom as well as in the EU, including Spain.” In addition, the potential regulatory divergence between the British and Spanish banking markets could raise Atom’s management costs.
On the other hand, the total ownership of Atom Bank could allow BBVA to use its technology in group subsidiaries in other countries.
The expectation of an operation has been increased by the recent addition to the board of Atom, by Gonzalo Romera Lobo, who is responsible for Mergers and Acquisitions of the Spanish bank in the digital sector, based in New York. He has replaced as administrator at Atom Victoria del Castillo, director of Strategy, Mergers and Acquisitions at BBVA.
The other directors appointed by the Spanish bank are Ian Ormerod, director of New Digital Businesses, and Ergun Özen, ex-board member of the Turkish entity Garanti, where BBVA owns 49%.