BBVA challenged Madrid's conditions on proposed Sabadell deal in court

MADRID (Reuters) -Spain's BBVA filed an appeal with the Supreme Court on July 15 against government-imposed conditions on its proposed takeover of smaller rival Sabadell, a BBVA spokesperson said on Thursday, confirming a report in El Espanol newspaper.

The appeal does not interfere with the around 15-billion-euro ($17.5 billion) hostile takeover approach first announced more than 15 months ago, the spokesperson added.

The government approved the proposed deal in June on the condition that a full merger between the two entities would be delayed by at least three years, citing potential risks to jobs.

This meant the timetable for expected joint cost savings, initially estimated at 850 million euros, would be delayed, BBVA's CEO Onur Genc said previously. BBVA aims to create Spain's second-biggest bank by credit volume after Caixabank.

BBVA last week said it was revising expected cost and funding synergies, citing higher risks after the government imposed conditions and Sabadell shareholders approved the sale of its British unit TSB to Santander, along with a 2.5 billion euro ($2.9 billion) cash payout derived from the deal.

But BBVA still said it believed the takeover would create value for the shareholders of both entities.

The European Commission opened an infringement procedure against the Spanish government over the conditions, citing concerns that its unrestricted powers to intervene in mergers and acquisitions impinge on the competences of the European Central Bank and national supervisors.

The government argues that domestic regulations are fully aligned with those in Europe. Spain has another month to respond and address the shortcomings raised by the Commission.

($1 = 0.8582 euros)

(Reporting by Andrei Khalip and Corina Pons; editing by Charlie Devereux, Kirsten Donovan)