Spanish Government says 'Nem' to Magyar Vagon Talgo takeover bid

On 27 August 2024 the Junta de Inversiones Extranjeras (Foreign Investment Council) of the Ministerio de Economía, Comercio y Empresa (Economy, Commerce and Business Ministry) vetoed the Ganz Mavag (Magyar Vagon) takeover bid for 100 % of Talgo's shares. It was stated that the Council's decision was founded on the need to 'protect national security and public order'. It was also related to an Act of Parliament passed during the Covid pandemic to prevent foreign acquisitions of Spanish companies during fluctuations in the stock market. The content of the report by the Junta has been declared as 'classified' by the Council of Ministers.

In March MITMS Minister Óscar Puente assured that the Government would do 'all in its powers' to prevent the takeover, given suspicions that Magyar Vagon had connections with far right political organisations and with sources in Russia linked with Vladimir Putin. 45 % of Magyar Vagon's capital is controlled by a Hungarian state fund, Corvinus, and András Tombor was a Government advisor to Órban during his period as Prime Minister between 1998 and 2002.

The Junta thus feared that a takeover of Talgo by Magyar Vagon could be a threat to national security, since Talgo has technology that could be used to facilitate military mobility of countries in eastern Europe, notably the Baltic States and Belarus (the latter country already has access to a Talgo gauge-changing installation on its border with Poland at Brest/ Terspol, used by Berlin to Moskva overnight trains).

Given the 'classified' nature of the report by the Junta, late on the 27th the Comisión Nacional de los Mercados de Valores (CNMV) decided to make use of powers available under Article 64 of the 6/2023 Act of 17 March 2023 to immediately suspend the trading of Talgo shares on the stock market. Trading of Talgo shares began the day at 4.30 EUR per share, and remained steady until the announcement by the Junta, at 12.26, when their value fell to 4.26 EUR, 0.93 % below that at the close of trading on the 26th.

The Government stated that the veto was in line with both Spanish legislation to control foreign investment and EU legislation on direct foreign investment, protection of domestic markets, and the free circulation of capital. No details were offered on the reasons for the veto, given the classified nature of the Junta's report. However, various bodies involved in the takeover bid have announced that they will protest.

One of these bodies is the Asociación Española de Accionistas Minoritarios de Empresas Cotizadas (AEMEC), an association of minor shareholders, which in July protested against the takeover proposal offered by Škoda Transportation, which it regarded as a competitive bid to that by Magyar Vagon, though no bid had yet been made, the company still seeking further details of Talgo's economic and industrial performance.

The Government defended its position by stating that Spain ranked fourth on a global scale for foreign investment to increase productive capacity between 2018 and 2023. Moreover Spain ranked tenth among developed countries for having few restrictions on foreign investment, placing the country ahead of the USA, Britain, Japan, Switzerland and Germany. Above all, foreign investment focusing on digitalisation and ecological transition and sustainability were encouraged, provided that they did not compromise national security and strategic interests.

By late on the 27 August Talgo sources were stating that they were awaiting a response from Magyar Vagon. Talgo still sees the Hungarian takeover as the best option to pursue, since it will allow shareholder Trilantic (40 % of shares) to leave, and will also enable production capacity to increase. Talgo is facing a substantial fine from Renfe for the late delivery and abysmal performance of its Class 106 AVRIL EMUs, while delays are being encountered with the delivery of trains for DB, which is likely to be even less compassionate than Renfe when it comes to imposing fines for failures to meet delivery schedules and performance. Talgo has a record level of orders, but has not infested adequately in production capacity. Škoda's proposals, it is asserted, solve the production capacity issue, but not the cash flow one.

In the meantime, Magyar Vagon is preparing itself for what could become a legal battle with an uncertain outcome, statements indicating that the company will 'take all legal actions available to it both in Spain and in the EU to defend its bid for Talgo, which complies with all current legal requiremets'. But the veto is also legally valid...