If there is one thing that cannot be denied about Alejandro Goicoechea, the inventor of the Talgo train and the father of high speed, it is his forward-thinking character. An octogenarian Goicoechea noted in a 1975 interview that in Spain “innovation and its innovator have had a hard time for decades.” And so it is: Today, more than 80 years after its revolutionary invention came to light, Talgo is falling on hard times.
The funny thing is, it’s not supposed to be like this. Talgo, which is in the middle of a public takeover bid (takeover bid) initiated by a semi-anonymous Hungarian consortium, closed 2023 with a historical revenue volume of 652 million euros, i.e. 39% more, and its order book is at its maximum. Historic levels at 4,220 million (54% more). The factories are in full production (there are only two in Spain, in Madrid and Álava) and there are plenty of contracts on the horizon. Where is the problem? The problem is size.
Talgo’s revenue of 652 million pales in comparison with its Spanish rival CAF’s revenue of 3.8 billion; Not to mention Japan’s Hitachi’s 66,000 million, Chinese state giant CRRC’s 32,000 million, and Germany’s Siemens, already in Europe, 56,000 million. and more than 20 billion from France’s Alstom, which bought Canada’s Bombardier in 2021. Size is key to having enough industrial capacity to suit more projects and at the same time meet order lead times..
reputation problem
“If you don’t comply internationally, they won’t trust you again in other international competitions and if that happens, you’re dead,” industry insiders say. Media close to the Spanish company acknowledges that Talgo “needs additional industrial capacity”. The company officially admits that it is “currently at maximum industrial activity at two of its plants.”
But before moving on to the most pressing needs, Talgo needs to resolve other fronts. Facing serious reputational damage due to accumulated delays in train delivery very high speed to state-owned Renfe (Avril project, with trains traveling at 330 kilometers per hour). This project, which consists of 30 trains costing approximately 1,500 million between construction and maintenance and was commissioned in 2016, is the key to high-speed transportation to Galicia and Asturias. But it did not meet the deadlines: it was supposed to launch at the end of 2021.
Now, Renfe announced that he would impose an additional fine of 166 million dollars and 80,000 euros per day on Talgo. For every day beyond April 1A deadline set by Óscar Puente, recently appointed Minister of Transport. It is currently not possible to meet the sanction for Talgo, which has an ebitda of 76.5 million in 2023 after 55 percent growth. “We will not be commenting further, but this is a project that has already left the production phase,” the company said.
But the problem with Renfe raises a particular concern affecting Talgo’s next big project: the two-stage delivery of 79 trains for Germany’s Deutsche Bahn (DB). This is the largest order in the history of the Spanish company, which was signed in 2019 for a total amount of more than 2,000 million, with delivery times starting in a few months.. Sources in the industry warn, “Germans are very demanding customers, they will not allow such delays.” Talgo is aware of this point: “This contract obliges us to make the most of the industrial capacity we have.”
The question is in the air. Will Talgo be able to meet its deadlines? “The DB contract was completed on schedule, in accordance with the revised deadlines agreed with the customer, taking into account exceptional circumstances such as covid-19, energy prices and logistics crisis due to the war in Ukraine,” official Talgo sources said. “There are currently units being tested in Germany and tours to Austria, Poland and Switzerland as well,” they add.. Nearby media also emphasizes that “before the summer of 2019, people from DB supervised the order at Talgo facilities.”
Nevertheless, The truth is Talgo is running out of time. The search for a financial-industrial partner has become a priority task since at least two years ago its main shareholder Pegasus, an investment vehicle controlled by the British fund Trilantic, which owns 40% of the company, announced its desire to sell. .
Make or new couple
At this point, the possibility of establishing a factory disappears. The minimum time required for an installation is two years at a record pace, although three years is normal. And Talgo is aware that it must be industrially successful in order to meet the growth of the sector and not miss opportunities: “It needs to increase its capacity and it needs to do it on time.”, describes sources from the industry. It is also worth noting that Talgo itself has stated that it is “working on commercial opportunities in multiple markets worth 5,000 million” and that it is “additionally” working to “participate in more than 20,000 million projects.” Therefore we need to look at other options.
They confirm that there are research approaches in the market with international giants such as Siemens and Alstom.Those who are not interested in this idea due to Talgo’s small size. If Siemens has a 6.8% market share in the global rolling stock rankings and Alstom and Bombardier combined give it 13.2%, Talgo controls only 0.6%: it competes because it “didn’t provide scale to the business” they emphasize.
These approaches also took place indirectly with CAF, a rival of Talgo, one of the jewels in Euskadi’s business, and therefore subject to the watchful eye of the Basque Government. However, in this case, the difference in projects (one focused on high speed, the Basque diversified completely towards trams or buses) led to the matter being scrapped.. If it can’t find more options, will it be a trump card in the central executive’s hand? It will depend on political arithmetic… And of course on elections.
Takeover offer as a solution
The solution to Talgo’s need for more industrial capacity could come in the form of a takeover bid. The Hungarian consortium, led by Magyar Vagon and with a 45% participation by the Hungarian state fund Corvinus, launched a takeover bid for the Spanish company.. The offer of 5 euros per share values Talgo at 620 million and is at the acquisition announcement stage, meaning Magyar Vagon is not yet submitting a prospectus.
In theory, Hungarian consortium little known in Spain could provide Talgo with missing industrial capacity. Headquartered in Budapest, Magyar Vagon has seven “fully operational” workshop factories in different parts of Hungary, as well as a factory owned by train manufacturer DJJ in the city of Dunakeszi. The latter is the largest factory of the consortium with 270,000 square meters. However, the one with the largest workforce and the second in terms of industrial area is Magyar Wagon in the town of Szolnok, with approximately 1,100 employees and 103,000 square meters. They produce moving railway equipment and carry out maintenance and repair of trains, engines, engineering and parts.
The total facilities of these eight factories total just over 510,000 square meters and the total workforce reaches 2,460 people, including those in offices numbering just over fifty. According to media close to Talgo, and beyond the board’s tentative yes to the takeover bid, they view the Hungarian candidate positively as he brings industrial strength. And also because it already provides trained personnel. Magyar Vagon’s 2,400 professionals will join Talgo’s 3,200 professionals, 2,200 of whom will be in Spain.
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But to benefit from this industrial strength, the acquisition must bear fruit. And this point is not clear at all. On the one hand, there is Talgo’s own board of directors, which supports the offer and until the transaction prospectus is known in detail.he described it as “friendly” and “attractive” for shareholders. Industry approval not only weighs on this yes, but the Hungarian consortium is also rushing to ensure that Talgo’s headquarters will remain in Spain, that employment and industrial capacity in our country will be preserved and, above all, that Talgo will retain its intellectual property rights. property rights and patents.
Also in favor is the operation’s trigger, Pegasus, controlled by British fund Trilantic, which holds 40% of Talgo and is rushing to bless the takeover bid. The Abelló family also participates in Pegasus through Torreal, members of the Oriol family (Talgo’s first partners along with Alejandro Goicoechea) and other institutional investors. Trilantic had been announcing its intention to divest for financial reasons for at least two years. Consider that the useful life of your investment has already ended.