BBVA, Spain's second-largest bank, has launched a hostile €12.23 billion ($13.11 billion) takeover bid for rival Sabadell after Sabadell's board rejected the same offer earlier this week.

The unsolicited bid was taken directly to Sabadell's shareholders on Thursday.

Sabadell's board had said on Monday that BBVA's offer significantly undervalued the bank's potential and prospects. The board reiterated this position on Thursday, setting up a clash between the two Spanish lenders.

BBVA aims to create a banking giant with over 100 million customers globally and assets exceeding €1 trillion, second only to Santander in Spain. BBVA's chairman Carlos Torres Vila called it "an extraordinarily attractive offer" for Sabadell shareholders.

Hostile takeover attempts are rare in European banking. The Spanish government expressed opposition, citing concerns over potential harmful effects on the financial system, jobs, and customers. However, Torres Vila said he's confident the government will see the deal's value once recent events settle.

Shares in BBVA fell 5 per cent after the hostile bid announcement, while Sabadell's rose around 4 per cent. Analysts view it as now a question of negotiating an acceptable price, questioning if the hostile route benefits either bank amid potential franchise damage.

BBVA offered 1 new share for every 4.83 Sabadell shares, a 30 per cent premium. The combined entity would overtake CaixaBank as Spain's largest domestic lender with over €625 billion in assets.

Buying Sabadell allows BBVA to diversify from emerging markets and refocus on Spain. BBVA estimated €850 million in potential cost savings and giving Sabadell shareholders a 16 per cent stake in the merged bank.

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