Škoda vs. Hungary: The Battle for Talgo and the Future of High-Speed Trains

Spanish train manufacturer Talgo is in a difficult situation, facing significant delays in delivering its new high-speed trains to Deutsche Bahn. Contractual penalties, plummeting stock prices, and ownership disputes have attracted new players. Who will ultimately gain control of Talgo, and how will it impact the European rail network?

The ongoing battle may be decided by an offer that resolves the delayed delivery of Talgo’s high-speed trains for Deutsche Bahn.

Talgo secured a historic contract with Deutsche Bahn to deliver 79 new-generation ICE-L high-speed train sets. The high-speed set, consisting of a multi-system locomotive and 17 cars, spans 256 meters and already runs on the Berlin-Amsterdam route at a top speed of 230 km/h.

However, it is clear that the delivery, planned in two phases, will be delayed by several months. Deutsche Bahn had hoped to introduce the ICE-L trains onto the German rail network this year. The decision to order trains from Talgo was intended to reduce Deutsche Bahn’s reliance on traditional suppliers like Siemens and Alstom. Additionally, Deutsche Bahn sought to explore the possibility of acquiring simpler and more cost-effective high-speed trains. Talgo now faces a potential contractual penalty amounting to hundreds of millions of euros, and its stock price has halved over the past year.

This situation is one of the two main reasons why the majority shareholder, the Trilantic fund, decided to sell its stake in Talgo to the Hungarian consortium Ganz-Mavag Europe, which offered EUR 619 million. Trilantic’s investment in Talgo has lasted 18 years, with part of the shares being listed on the stock exchange. The main reason for the investment's failure is considered to be an inadequate investment in production capacity for the acquired and contracted orders. Spanish operator RENFE has already imposed penalties on Talgo for delayed deliveries and missed deadlines, and the failure to fulfill the Deutsche Bahn contract could ultimately sink Talgo. In 2023, Talgo reported an operating profit of EUR 77 million on revenues of EUR 652 million.

In Spain, however, this transaction has encountered political obstacles. In March 2024, Spanish Transport Minister Óscar Puente declared that he would "do everything possible" to prevent Talgo from accepting the offer. The government of Prime Minister Sánchez is one of Hungary's harshest critics within the EU and fears that Russian investors may be secretly behind the deal. The Spanish socialist government has real tools at its disposal to block the transaction. The agreement on capital entry is submitted by Spain’s securities market regulator (CNMV) to the Directorate-General for International Trade and Investments of the Spanish Ministry of Economy, which then convenes the Foreign Investment Council. The matter will ultimately be handled by the Spanish government, which has already announced an extension of the deadline until October 2024.

Meanwhile, we’ve uncovered other key details. Minister of Economy Jordi Hereu considers Talgo a strategic company, giving the government the right to scrutinize the profiles of future owners. The Hungarian consortium Ganz-MaVag Europe Zrt. was established in December 2023. The Chairman of the Board is György Bacsa, and one of the five board members is András Tombor. The sole shareholder and owner is Ganz-MaVag Holding Kft., also founded in December 2023. The holding company is 100% owned by Magyar Vagon Befektetési Vagyonkezelő (MVBV) Zrt., formerly owned by Kristóf Szalay-Bobrovniczky, the current Minister of Defense of Hungary.

Today, the company has two owners: Magyar Vagon Invest Zrt. and Solva Industrial Investments Zrt., both owned by the private investment fund Solva II, as discovered by RAILTARGET. The latter is controlled by Lead Ventures Alapkezelő Zrt., a subsidiary of the Hungarian oil group MOL. The Russian connection existed through Ganz-MaVag International Kft. After Russia invaded Ukraine and the imposition of sanctions, the Russians sold their stake in the company, but suspicions of links still linger around Cato Investments, controlled by András Tombor.

The pressing issue of ICE-L deliveries for Deutsche Bahn is a matter of production capacity. Talgo urgently needs an industrial partner, and here, Škoda Transportation can offer production capacity and expertise. Talgo has deliberately excluded industrial giants Siemens and Alstom from discussions due to European antitrust regulations, but according to the German press, it is in talks with Stadler. The Hungarian consortium is in a position to offer to build trains in its facilities, which have capacity available due to the cessation of wagon deliveries to Russia.

From this competitive perspective, the offer from Škoda Transportation's CEO Petr Novotný to Talgo's counterpart Gonzalo Urquijo Fernández de Araoz to merge Škoda and Talgo appears logical: The product lines of both companies largely complement each other; Talgo primarily produces high-speed trains, which Škoda does not have in its portfolio and does not plan to develop. According to the German press, the Spanish government is inclined towards Škoda's proposal. However, Talgo’s shareholder, Trilantic, has publicly stated that PPF, as Škoda's owner, is not currently considering a capital investment. As a result, Talgo rejected Škoda's offer as vague and suspended negotiations.

Compared to Škoda, the Hungarians currently hold the advantage as they are the only ones to have made an offer with a price per share (with a 25% premium over the current stock market value) and have announced that they will take legal action against any exclusion on the grounds of alleged connections to Russia. Since Talgo is publicly traded, Škoda’s offer must match the parameters of the Hungarian bid, including a specific price per share. They must also address the fact that Trilantic's priority is clearly to sell to anyone willing to acquire 100% of the company.

In the meantime, the Polish government has become active. Last week, Deputy Minister of Infrastructure Piotr Malepszak confirmed in the Sejm that Talgo could be a partner for Polish vehicle manufacturers for the HSR project within the CPK framework. There is a consideration that the Polish state could commission the production of railway vehicles to be offered for lease to operators on the HSR network and/or operated by the state itself. Financing for the acquisition would be arranged by the Polish Development Fund (PRF).

 

Source: eleconomista.es, manager-magazin.de