A rare hostile takeover bid in Europe's banking sector has shocked markets

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Spanish bank BBVA caught markets by surprise on Thursday after it announced a rare hostile takeover bid for domestic rival Banco Sabadell, with one investment firm describing the situation as «very strange.»

The move comes shortly after a separate 12 billion euro ($12.87 billion) takeover offer from BBVA to Sabadell's board was rejected earlier in the week.

The board said Monday that BBVA's initial bid «significantly undervalues» the bank's growth prospects, adding that its standalone strategy will create superior value. It reiterated this position on Thursday as BBVA took its all-share offer directly to the bank's shareholders.

BBVA said its takeover offer has the same financial terms as the merger offered to Sabadell's board. It characterized the proposal — which would create Spain's second-largest financial institution if successful — as «extraordinarily attractive.»

«We are presenting to Banco Sabadell's shareholders an extraordinarily attractive offer to create a bank with greater scale in one of our most important markets,» BBVA Chair Carlos Torres Vila said in a statement.

«Together we will have a greater positive impact in the geographies where we operate, with an additional €5 billion loan capacity per year in Spain.»

Shares of BBVA fell 6% at around midday London time on Thursday, while Sabadell's stock price rose more than 3%.

Hostile takeover bids are not common in the European banking sector and BBVA's decision to proceed in this way has taken many by surprise.

Carlo Messina, CEO of Italy's biggest bank Intesa Sanpaolo, told CNBC on Wednesday that there were significant challenges to domestic consolidation within the region's banking sector.

He said it was difficult to complete a «friendly