The war to take over Talgo threatens the company’s future

On the playing field, in addition to the government and the participating companies, are investment banks, the National Securities Market Commission, shareholders, the buyer and a new agent that emerged this week, the Czech train maker Skoda, which has no relation to the car brand integrated into Volkswagen.

The Magyar Group is considering a purchase offer, a “friendly” takeover agreement agreed with the Talgo board, in which it offers $617 million for the company. The company sees this as a solution to expand its production capacity, despite its $4.2 billion order book. It also responds to the desire to sell Talgo’s main shareholder, the Trilantic fund, which has been looking for a buyer for three years.

But Moncloa is suspicious of the Hungarians because of the support they receive from Viktor Orbán’s government and the possible links with which it has speculated on Russian capital. And this is important, because the central executive must authorize the operation, since it involves international capital, even if it is from the EU. The decision of the Council of Ministers, but taking into account the opinion of the Foreign Investment Council (Jinvex). This technical body has been analyzing Magyar Vagon’s request since April and, according to the deadline, must decide on August 10.

The Hungarians have offered to hand over the shares to the government or to companies it considers a block of shares. But if the operation is refused, a complicated scenario will open up.

Talgo’s viability would be at risk if it could not cover all the orders for trains, which in turn would be guaranteed by banks that would honour the guarantees at the customers’ request. And on the other hand, there would be litigation if the reasons for rejecting the request were not purely technical. They revolve around three objectives: ensuring competition, reliable industrial plans and national security. Magyar Vagon said there were legal ways to defend its position, and although it believed that the “rationality of its industrial offer” would pave the way, it would not hesitate to defend itself if such a case arose.

Czech road breaks down

It will also be necessary to consider the demands of Talgo shareholders, who will suffer serious financial losses if they cannot sell their shares at a price of 5 euros.

Czech Skoda has jumped into this whole scenario this week. Yes, with Moncloa’s approval, but without a counter-bid, rather with a proposal for “business integration”. In its letter, it did not specify the payment price or the production plan, and Talgo’s board of directors has given it until next Thursday to clarify whether it is prepared to pay more than the 5 euros per share offered by Magyar, and what the tasks of the project business are.

Skoda’s unusual behavior in a regulated process like a takeover bid has sent shockwaves through the markets. Analysts began pointing out possible irregularities and harm to minority shareholders on Wednesday, JB Capital reported. Talgo’s main partner, Trilantic, later warned that it would not analyze any approach short of offering 100% of the company. A way to block partial acquisitions or merger projects.

And the central government, defending control of Talgo in Spain, tried to form several alternatives with CAF, Stadler, CriteriaCaixa or Escribano EM&E. None of the takeover bids were successful due to the lack of economic potential or an industrial partner with knowledge of the sector.

Only Skoda has expressed interest, but it also has no money. As this newspaper confirms, it will be only 3.5 euros per share. The plan, as sources familiar with the negotiations explain, is to wait until the Hungarian takeover bid is rejected or the government rejects it, in order to offer a merger as the only alternative to Talgo.

Financial situation

The latest move in this chain of reactions occurred on Thursday. Magyar Vagon sent a letter to the CNMV regulator asking for protection to guarantee the takeover procedure and market rights. It feels that Skoda’s move could contravene takeover law, manipulate the market and harm shareholders.

Euskadi plays a role. In addition to Talgo’s Basque origins, it is home to the main of its two factories, employing 700 people. The Basque government, led by Imanol Pradales, has already taken the step of saying it “does not know why the Spanish executive is giving priority to the Czech option” and demanding that “the most reliable industrial project” be chosen.

It is from the business development point of view that analysts note that Magyar Vagon’s advantages are that it secures important orders and a solid workforce, as well as the ability to bid for international contracts in Egypt, India and Eastern Europe. Skoda also has additions to its production, but it is experiencing financial difficulties after Covid with losses of 78 million last year, and as for personnel, adjustments will be required due to the doubling of engineering staff.