This Thursday, the European Commission approved the Spanish government’s veto of the public takeover bid (OPA) launched by a Hungarian company for Talgo, alleging the protection of Spain’s interests and national security, although it stressed that the situation could end up being settled before the Court of Justice of the EU (CJEU).
At a press conference in Brussels, Community spokeswoman Francesca Dalboni avoided raising objections to the government’s move after assuring that it was the prerogative of member states to adopt such decisions, Europa Press reports.
Dalboni thus recalled that the EU treaties allow for restrictions on the freedoms of the single market, such as freedom of establishment and the free movement of capital, on grounds of public security.
“The measures must be justified and proportionate to the objective they pursue,” added Dalboni, who indicated that the Spanish authorities had no obligation to inform the European executive in advance of their decision.
After the potential buyer, Magyar Vagon, announced that it would approach the European authorities to denounce the Spanish manoeuvre, the European Commission assured that it had no news from the company for the moment.
In this sense, the community’s spokesperson, Eric Mamer, summed up that the principles according to which the EU operates are included in the treaties and that this type of decisions must ultimately be supervised by the CJEU.
Brussels’ response, significant in the case of an operation that affects two EU member states, comes after the Spanish government confirmed on Tuesday its veto to the takeover bid by the Hungarian company Ganz-Mavag for 100% of Talgo. In one of its first decisions after the summer holidays, the Executive states that this “strategic company” operates in a sector “key for economic security, territorial cohesion and industrial development” and that authorizing the operation “would entail insurmountable risks for national security” and public order.
The veto on this operation valued at 630 million euros, over which the shadow of Vladimir Putin looms, aims to “defend the interests of our country and the national security of Spain”, according to the Minister of the Presidency, Félix Bolaños. And this was to be expected since in March, the day before the officialization of the takeover bid, the Minister of Transport, Óscar Puente, announced that he would do “everything possible” to make it fail.
The offer, in cash, implied a consideration of 5 euros for each Talgo share. It represented a premium of 41% compared to its price in the six months preceding its presentation. It had the determined support of the group’s main shareholders, among whom are two of the richest families in Spain, the Oriols and the Abellós. Eager to make money, Talgo’s main partners, first and foremost the American fund Trilantic, declared in writing that the Hungarian proposal guaranteed jobs at Talgo and preserved its “Spanishness”, in capital letters.
The Executive’s decision is based on the so-called anti-takeover shield that the government launched in 2020, after the outbreak of the coronavirus, to be able to stop hostile operations by companies from abroad. Until now, there was no precedent for a veto on an operation of this magnitude with this tool. The decision is based on a decision by the Foreign Investment Council of the Ministry of Economy, the details of which are unknown, as it is based on classified information.
According to El País, reports from the National Intelligence Center (CNI) and National Security have warned of the links of this Hungarian group with the Putin regime and with figures close to the Hungarian far-right Prime Minister, Víktor Orban, current president in Hungary’s EU office, whose proximity to Russia is known.
Another key aspect to justify this veto would be access to Talgo’s critical technologies, its automatic track change system, which allows its high-speed trains to cross different countries and would facilitate Russia’s military logistics in the midst of a war with Ukraine.
However, industry sources assure that Moscow has had this technology for years, which Talgo initially patented in 1966 and which fell into the public domain in 1987; that the protection of its successive improvements has expired; that for military purposes, the application requires solutions adapted to the transport of goods, where Talgo does not operate. And it is the Spanish state-owned company Adif that has been supplying this technology to Ukraine for some time.
What is not in doubt is the connection between Ganz-MaVag and Orbán. 45% of the consortium is in the hands of a Hungarian government investment fund. The remaining 55% comes from the Hungarian railway company Magyar Vagon, controlled by businessmen from the presidential channel, and which was an ally of the Russian Transmashholding (THM) before the invasion of Ukraine. Relations broke down when the EU and the US began imposing sanctions on Russia. Classified reports suggest that the Russian and Hungarian groups continue to maintain informal ties.
The visible leader of the Hungarian operation in Spain is businessman András Tombor, defense advisor to the first Orbán government between 1998 and 2002. Tombor has not denied these relations with Russia since he presented the takeover bid. But he assured that they had been almost completely cut after the invasion and had only been maintained to complete certain deliveries. The classified reports processed by the Executive would call this theory into question.
Meanwhile, the National Securities Market Commission (CNMV) is waiting for Ganz-Mavag’s next steps to decide on the takeover file. After the Government’s veto, the stock market regulator cannot authorize the offer and must now wait for the bidder to communicate whether it is requesting its withdrawal or whether, as announced, it is appealing the Executive’s decision.
CNMV sources consulted by EFE did not want to speculate on the resolution it will take regarding the takeover file, pending the decisions adopted by the bidder.
At the legal level, in Spain, the Hungarian group could present a contentious-administrative appeal, arguing a lack of proportionality or an insufficiency in the motivation of the executive’s veto on the takeover bid.
But it could also act in Europe. One option would be to lodge a formal complaint with the European Commission, alleging that the Spanish government’s veto violates EU rules. It could also request a preliminary ruling from the CJEU to obtain an interpretation of European Union law on the concept of national security and its application in this context.
Spanish law also provides for the possibility of filing an appeal for review before the body that adopted the decision, namely the Council of Ministers. But legal sources believe that this option has little potential, unless it contains very gross errors or is not sufficiently well-founded.
The lack of a definition of the acquisition adds uncertainty to the situation of Talgo, a company with a high debt load and in which its current shareholders refuse to invest more money to finance its growth. The historic railway manufacturer, founded in 1942 and with two factories in Madrid and Alava, has seen a boom in orders in recent years but does not currently have sufficient industrial capacity to fulfil the orders of its customers, including Renfe or the German state operator Deutsche Train. And it is exposed to penalties of one million dollars in the event of a delay in delivery.
Trilantic has been trying for years to get out of it with Oriol and Torreal (of billionaire Juan Abelló), with whom it controls 40.22% of Talgo through a vehicle in Luxembourg, Pegaso Transportation International SCA, which in its latest accounts closely follows the arguments of the Hungarians: they emphasize that “the offer contains a clear industrial logic and, importantly, guarantees the Spanishness of the company and the preservation of employment and jobs.”
A worrying warning for the 3,420 employees that Talgo had as of June 30. Its majority union, the Independent Trade Union and Civil Service Center (CSIF), demanded this Wednesday that the government explain its roadmap for the company after the veto and whether there is an alternative solution that guarantees the continuity of all staff, working conditions and its headquarters in Spain.
CSIF “regrets the uncertainty in which all staff have been immersed for months.” For its part, CCOO has requested meetings with Talgo management and the government to clarify the future of the company. “We will make the necessary arrangements and request an urgent meeting with Talgo management, which we understand will have something to say about all this and will have to put its alternative plans on the table and if they do not have them, they must start building them because Talgo must get rid of all the workload and orders it has, and the staff deserve certainty and a solid and clear future,” it said in a statement.
