Basque group Sidenor opens doors to takeover bid for 100% of Talgo | Companies
Sidenor has taken its interest in Talgo a step further and is ready to launch an offer to acquire 100% of the capital. Train manufacturer CEO Gonzalo Urquijo sent a note to the National Securities Market Commission (CNMV) in which he claims to have received “today a letter of expression of interest from the industrial group Sidenor, in which it states that it is considering the total amount or partial acquisition of the shareholding capital of Talgo, SA.
After the Basque industrial company’s appetite became known in the press on Tuesday, Talgo shares rose by 4.5%, adding to this Wednesday’s new revaluation of 4.9%, to 3.64 euros per share. The price is still nowhere near the 5 euros that Hungarian consortium Ganz Mavag offered in a takeover bid that was vetoed by the government at the end of August on national security grounds.
A spokesman for Sidenor refrained from adding further comments to what was said in the brief message sent by Talgo to CNMV. In these three lines one can interpret a change in the planned scenario: it is Sidenor who turns to Talgo and not to Mirai, an instrument controlled by the owner of the steel company, José Antonio Hainaga, and some of its directors. With this last car, they took the keys from Sidenor himself in 2016 from the Brazilian Guerdau for 155 million.
Another innovation is the possibility that the offer will cover all Talgo shares, although a partial purchase is also being considered in Sidenor. There are no commitments at this time. According to sources close to the negotiations, the amount of investment depends on the support that both the Basque and central governments are willing to provide. The same sources indicate that Sidenor claims at least a 29.9% stake in Talgo.
Jainaga has been trying for years to commercially diversify Sidenor’s specialty steel business, which has 70% of its business in the auto sector, with the risk this entails when the four-wheeler industry faces a downward demand cycle. A situation arising from consumer hesitation about purchasing a vehicle, whether internal combustion engine, hybrid or battery powered.
The President of Sidenor made the transition from high-level manager to businessman thanks to the aforementioned purchase from Gerdau, accompanied by a team of half a dozen Basque executives who follow him in both Sidenor and the Mirai project. José Antonio Hainaga worked under Sabino Arrieta when that investor won the privatization of Sidenor. Arrieta later sold the steel company to the Brazilians. An industrial engineer and great expert in steel, Jainaga eventually took full control of the Biscay company.
Role of Trilantic
In addition to the shortage of factory capacity, Talgo faces the problem of the departure of its core shareholders, 40% of whose capital is held through the tool company Pegaso. The group is led by the US fund Trilantic, which owns just under 30% of Talgo, and also includes Torreal, the Abello family’s investment company and the Oriol family. Until now, Trilantic has maintained that it will only accept an all-capital offer, and with this stance it could try to force a takeover bid to be launched following the loss of the Ganz Mavag asset.
The Basque government openly stated that it would participate in the Talgo offensive as long as it was led by an industrial partner. This is expected to be done through the Finkatuz public fund, through which the Vitória executive already participates in the CAF railway company with 3% and a position on the board of directors. The head of Imanol Pradales has handed over the strategic banner to Talgo both for its production activities in Euskadi, through the Rivabellosa (Alava) plant, and for the 700 employees who work there. In addition, Talgo has a production plant in Las Matas (Madrid), which employs a further 500 people, as well as various technical service and research and development centers.
Sidenor’s movements are closely monitored from La Moncloa. The State Society for Industrial Participation (SEPI) is ready to participate in the change of control within Talgo with the help of an industrial investor. But until now, a 100% takeover proposal has not been the preferred plan of Pedro Sánchez’s government. The other player in the room is CriteriaCaixa, which will also have a minority stake.
Before sending the letter to Talgo’s CEO, Sidenor limited himself to pointing out that its owner “always keeps under review the analysis of operations to ensure stability, especially in the industrial sector.” Inside sources said yesterday that it was “too early to talk about anything else.”
A backlog of contracts worth more than 4 billion euros, which coincides with factories running at capacity and the refusal of major shareholders to strengthen Talgo’s capacity before selling it, has left the company facing difficulties in meeting its obligations.
After the Hungarian investor group Ganz Mavag embarked on a venture that is one of the main landmarks in the high-speed train sector, the Ministry of Transport, led by Oscar Puente, did not stop looking for other alternatives. The appetite of other Spanish-based manufacturers was first tested, resulting in Stadler, Alstom and CAF refusing to buy Talgo. This also did not fit into Siemens’ plans, so Puente’s team moved to Eastern Europe, attracting the interest of the Skoda group. The alternative option, the latter, has been rejected several times by the Talgo board because it does not entail a competitive takeover bid with the Hungarian one, but rather an integration project in which production capacity and commercial strength are offered to an expanding market such as that of Eastern Europe .
What Talgo’s management has done since last year is pave the way for alliances in case it has to outsource production. In an agreement signed on September 24, the company, chaired by Carlos de Palacio, joined forces with the Polish company Pesa to open up a wide field of cooperation. They are currently studying its potential “in the development of Poland’s new high-speed and ultra-high-speed railway network.”