Banco Popular was Spain’s sixth-largest bank in 2017. It

Banco Popular
was Spain’s sixth-largest bank in 2017. It faced liquidity problems with over
37bn euros the non-performing loans on its books. The European Central Bank
(ECB) determined that Banco Popular going to collapse that gave sever loss to losses
on shareholders and junior bondholders . European authorities were used to
encourage financially strong banks to rescue failing rival. The bank’s share
price decrease to half of its market value within a week.   analysts estimated at
€4bn-€5bn additional capital need to gap the crisis situation Additionally,
they had to face liquidity problems because of the huge on of withdrwals of the
depositors. Moody’s downgraded Popular’s unsecured debt and deposit rating.
Meanwhile, Santander, biggest bank of Spain, declared its purchase for the
symbolic sum of €1 ($1.10). It is to raise €7bn in capital to help absorb
Popular’s property-related losses.Santander bank’s offer succeeded to buy rival
Popular Bank in symbolic price of one Euro without asking for any state
guarantees against hidden losses on its balance sheet. Santander planned to raise
7bn euros additional capital to build up the balance sheet of Banco Popular by
issuing shares.

First, valuing
a target company and estimating the potential benefits of acquiring company are
critical in mergers & acquisitions than purchasing other assets. Takeovers
can justify their acquisition. That justifications can be classified as
economic, financial or managerial in origin. Takeovers offer economic
justification that shareholder wealth will be increased after the acquisition than
been separated bodies.

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acquisitions defines the combination of two companies who are in same industry
and same stage of production. In this case acquisition can be called as Horizontal
acquisition because Santander and Popular are leading banks in Spain’s banking
industry. Horizontal acquisitions increase market share and monopoly profits. Acquisition
can be financially justified on financial benefits.  According to company strategy and tactics they
must pay their attention what the most efficient solution is acquisitions or
independent purchase of required assets. Takeovers have to spend their time to
identify the target companies, collecting informations, valuing the companies,
selecting the most appropriate target company and deciding how to finance the acquisition.
Absence of the right tactics takeovers may offer over the real value. But Santander
decided to buy Popular in single night work.

Arnold argues
that, if the company decides to increase the retained earnings will reduce the
dividends due to the risk.