(Bloomberg) -- For Carlos Torres, architect of Spain’s first hostile banking takeover in decades, time is a far bigger obstacle than the opposition of Banco Sabadell SA’s board and the Spanish government to his €10.5 billion ($11.2 billion) bid.

Two months into his battle for the smaller rival, the 58 year-old chairman of Banco Bilbao Vizcaya Argentaria SA is racing to persuade stakeholders of the merits of a deal that would create a giant with more than €1 trillion in assets. BBVA, which has ruled out increasing its offer, argues a combination would lead to cost savings and funding advantages. But opposition from the government, which can veto a legal merger, has raised the prospect of a drawn-out process. 

“Time can make things different,” Torres said in an interview in London. “Things could happen in the cycle that would make what looks attractive, less attractive or more attractive.”

Sabadell, which has rejected the all-share offer as too low, is counting on its own stock performance to derail a deal. The bank pledged to return €2.4 billion to shareholders over 2024 and 2025 when it rejected BBVA’s approach. Torres suggested that pledge overstates Sabadell’s ability to generate excess cash in the long run.

“That’s a metric that is very misleading,” he said in a rare swipe at the rival. “This is two years of cash that’s already theirs, you’re putting it from one pocket to another.”

For Torres, who ran BBVA as chief executive officer before becoming chairman in 2018, failure or success of the takeover attempt is likely to define his tenure. Under his leadership, BBVA already approached Sabadell more than three years ago at a much lower valuation, but talks fell apart in a disagreement over price and uncertainties in the wake of the Covid pandemic.

BBVA at that time improved an initial offer that had valued Sabadell at about €2.5 billion, but not enough to sway the rival, people familiar with the matter said at the time. Sabadell’s valuation subsequently soared as it resolved a pile of problems, including provisions linked to its small- and medium-sized enterprise business, and the troubles at UK unit TSB.

This time around, BBVA wanted to build on the earlier discussions, Torres said. He spoke with Sabadell Chairman Josep Oliu by phone on April 15 and then met him in Barcelona on April 17. Torres had hoped to reach an agreement within a few weeks and announce it by mid-May. But by the time of his next meeting with Oliu, news of their talks had leaked and pushed Sabadell’s stock higher.

“I land in Barcelona to meet with them, and boom, there’s this leakage, which completely alters the path and we have to make it public and then they reject it,” he said. 

BBVA’s offer, Torres said, included everything agreed in 2020 and more, including a 30% premium over the share price before news of the talks broke.

“We have never gone hostile,” he added. “This is an unsolicited offer” and “maybe you can call it a hostile rejection.”

Sabadell’s board rejected BBVA’s proposal based on the facts and because it views the all-share offer as significantly undervaluing the firm and its future prospects, said a person familiar with the matter. Sabadell can deliver more value to shareholders as a stand-alone business, the person said.

Sabadell has said publicly that BBVA also underestimates restructuring costs and the capital impact of a deal, which would trigger fair-value adjustments as well as breakup fees with suppliers. Deutsche Bank AG analyst Alfredo Alonso echoed the view on the capital hit in a note last month. 

BBVA has scheduled a shareholder meeting for July 5 to approve the capital increase needed for the all-share transaction. It is offering one newly issued BBVA share for every 4.83 Sabadell shares. At the time the offer was made, it still implied a valuation of €11.5 billion for Sabadell, 18% above where it traded before.

“We have had a large number of meetings with a very significant percentage of our capital base and the feedback couldn’t be better,” Torres said of the upcoming BBVA shareholder vote.

Apart from the price, a key point of contention are the savings that BBVA estimates a merger would create — €750 million cost reductions and around €100 million in lower funding costs — particularly if the government blocks a legal merger, as Economy Minister Carlos Cuerpo has suggested. Any costs saving would likely be far lower if there’s no legal merger, according to a person familiar with the matter.

In such a case, “the economics of the transaction would likely deteriorate,” analysts Benjamin Toms and Pablo de la Torre Cuevas at RBC Capital Markets wrote in a note last month. “However, our view is that enough other parties would have approved the transaction by the time that the government gets to opine on the merger, making it difficult to justify blocking the deal at such a late stage.”

Spanish securities regulator CNMV has signaled that before an offer to shareholders could go ahead, BBVA should clarify what savings it expects in case it can’t complete a legal merger of both banks. Rodrigo Buenaventura, CNMV’s chairman, said last week “it would be very convenient” if BBVA were to spell out the cost cuts in such a case.

“If for some reason that merger were not to happen, which would be unprecedented, we still believe the transaction has merits and we would be able to capture most of the synergies,” Torres said, without providing a number. 

Most of the savings, he said, are in technology and general expenses, and not from job cuts, though he wouldn’t be drawn on details. As for TSB, the British retail unit that Sabadell has turned around in recent years, Torres said it was too early to say what its fate would be if the deal goes through.

--With assistance from Rodrigo Orihuela and Laura Noonan.

(Updates with analysts’ comment in fourth graph from bottom.)

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