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On 27 August 2024, the Spanish government banned a takeover bid of Spain’s leading railway manufacturer, Talgo, from Ganz-Mavag, a Hungarian investor with government connections.
This is the first known prohibition under Spain’s foreign investment screening legislation introduced in 2020. (Publicly available statistics show that the Spanish government blocked another transaction in 2022, but there is no other public information about it).
This decision is particularly significant because the investor’s ultimate beneficial owners are from the EU. Ganz-Mavag is a consortium formed and jointly controlled by Magyar Vagon (55%), a Hungarian railway manufacturer that is ultimately owned by MOL Hungarian Oil and Gas Plc (a publicly traded energy company), and Corvinus (45%), a Hungarian sovereign investor.
Spanish FI rules capture certain investments from other EU Member States on a temporary basis. This temporary mechanism was originally supposed to remain in place until the end of 2024, but the deadline has recently been extended – see further below. Specifically, EU investments require screening in Spain if (i) the investment affects one of the broadly defined sensitive sectors; and (ii) either: (a) the Spanish target’s shares are traded in an official market in Spain; or (b) the value of the investment in Spain reaches EUR 500 million.
While EU market freedoms (such as the freedom of establishment or movement of capital) apply in full to intra-EU cross-border transactions, the case law from the Court of Justice of the European Union serves as a reminder that Member States may derogate from these freedoms on the grounds of public policy, public security or public health (Article 52(1) TFEU). This derogation can be relied on "if there is a genuine and sufficiently serious threat to a fundamental interest of society" (Judgment of 13 July 2023 Xella Magyarország, Case C-106/22, ECLI:EU:C:2023:568, para. 66 – see our post on the judgment here).
In this case, the decision from the Spanish Council of Ministers was based on "national security" reasons. The Spanish government has publicly described Talgo as "a strategic enterprise in a sector key to Spain's economic security, territorial cohesion and industrial development."
The decision itself (available in Spanish here) appears to be very brief and does not provide a lot of detail on the underlying security reasons that support the ban (this information and the administrative files that contain it are classified under the relevant legislation).
However, according to Spanish and international media, security reports from Spain’s intelligence community had highlighted that Talgo owns advanced technology for the automatic change of track gauges, which allows trains to travel seamlessly between countries with different systems of railway tracks. This variable gauge technology was developed to overcome Spain’s uncommon track widths, which are different to the standard European gauges. Apparently, this technology could also be key for the eventual future integration of Ukraine’s railway system with that of other EU countries.
These alleged intelligence reports further suggest that MOL appeared to have continued informal links with Russian oil businesses, despite having ostensibly cut all ties with them after the start of the 2022 invasion of Ukraine. This circumstance, together with the Hungarian government’s joint control over the offeror, reportedly created - in the opinion of the Spanish intelligence agency - a substantial risk of disruption of potential supplies to Ukraine of Talgo’s technologies. Additional concerns reported in the media seem to have included that these technologies could be shared with the Russian government to facilitate its war logistics and the maintenance of its railway infrastructure, cementing its control over Ukraine’s occupied areas.
Ganz-Mavag has publicly announced its intention to challenge the Spanish government’s decision in court. If this is carried forward, it would be the first known judicial review proceeding of a decision under the 2020 FI rules.
Commentators in the Spanish media had envisaged that this veto would force the Spanish government to extend the temporary FI screening mechanism for EU investments beyond the end of 2024, as otherwise Ganz-Mavag could simply attempt a new takeover in a few months without requiring FI approval. Carlos Cuerpo, the Minister of Economy, has now confirmed this to be the case, and the temporary mechanism applicable to EU investors will be extended for at least another year.