UPDATE 3-BBVA, Sabadell to explore possible merger

(Adds share reaction and valuation of banks)

MADRID, April 30 (Reuters) -

Spanish lender BBVA and smaller rival Sabadell said on Tuesday that they had started negotiations to explore a possible merger, triggering a rise of more than 7% in Sabadell's shares.

BBVA said it had conveyed to the chair of the board of directors of Banco Sabadell the interest of BBVA's board of directors "in initiating negotiations to explore a potential merger transaction between the two entities".

Sabadell confirmed that it had received an indicative written proposal from BBVA for a merger on Tuesday afternoon.

"The Board of Directors of Banco Sabadell will properly analyse all aspects of the proposal," it said in a statement.

Sky News had earlier reported that BBVA was working with advisors including JP Morgan on the initial stages of an-all share deal with Sabadell.

JP Morgan declined to comment.

BBVA, the euro zone's second biggest lender with a market value of around 60 billion euros, added that it had appointed advisers for the possible operation.

At 12.25 GMT, shares in Sabadell rose more than 7% reaching a market value of around 10 billion euros, while BBVA was down 6.5%.

In November 2020, Sabadell and its bigger rival BBVA called off merger talks as they did not agree on the terms of the deal such as the price tag.

Differences between BBVA and Sabadell over the value of British unit TSB, which was bought by Sabadell in 2015 for 1.7 billion pounds ($2.29 billion), were partly to blame for merger talks breaking down, a source directly aware of the talks had said then.

BBVA did not want to pay more than 2.5 billion euros for Sabadell, while Sabadell was not willing to accept anything less than 3 billion euros, the source said, with the difference partly down to TSB. (Reporting by Jesus Aguado and Inti Landauro, writing by Andrei Khalip, editing by Aislinn Laing)