Governments can be big, uncompromising partners in a business deal. except in spain it would seem. state-controlled bankia, a motley collection of savings banks, agreed all-share merger terms on friday with caixabank. the latter has offered a 36 per cent premium over bankias value on september 3. hefty merger cost savings suggest caixa could have paid more.

Clearly the market had higher hopes. bankias share price fell 4 per cent on the day, more than its barcelona-based acquirer. since merger talks were publicly disclosed, analysts had run their slide rules over the merged entity. some anticipated a premium higher than implied by the offer of 0.6845 caixa shares for every bankia share.

The takeover made sense on paper, given the overlapping businesses. bankia has some excess capital, estimated recently at 1.9bn by andrea filtri at mediobanca, which will bolster the combined balance sheet.

Terms of the merger included proposed annual cost savings, which taxed and capitalised work out to about 5.5bn. that more than doubles the implied premium caixa has offered to bankia shareholders, a large buffer. yet, the governments arm the fund for orderly bank restructuring (known as frob) chose to take the price given. to be fair it has a mandate to sell its bankia stake down by the end of 2021, and this deal will reduce its majority position heavily to about 16 per cent.

Then again, bankias minority shareholders have reason to complain. caixa could have easily paid a fifth more than the implied 1.41 a share. the combination results in after-tax extraordinary costs for redundancies and branch closures of 2.2bn, which will erode the new banks capital. any excess capital at bankia, once a potential dividend payout, will now be invested to offset this. caixa shareholders should be delighted.

Long-suffering bankia holders, including taxpayers, may well be happy to exit after years of dire share performance. but spains government has been a pushover. it has done minorities no favours by acquiescing to this modest price.

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