Indra puts merger with Escribano on hold

BarcelonaIndra's board of directors, in an extraordinary meeting, decided to postpone the planned merger with Escribano Mechanical & Engineering SL (EM&M). The decision was proposed by the chairman, Ángel Escribano, who also co-owns EM&M with his brother Javier. With this move, Escribano circumvents the demand from the State, Indra's largest shareholder through SEPI, which had called for his resignation should the integration project proceed. SEPI, the state-owned holding company that controls 28% of Indra's capital, considered this the only way to avoid a conflict of interest, even though measures had been taken to prevent the businessman from participating in the merger aimed at creating a major Spanish defense group. SEPI argued that a conflict of interest would arise if the integration went ahead and Indra acquired a company co-owned by its own chairman. The Escribano family, for their part, have opted to propose to the board of directors that the merger be halted and that Ángel Escribano remain as chairman of Indra. EM&M holds 14.3% of Indra's capital, Ángel Escribano is its chairman, and his brother is also a board member. In this context, the company's shares registered a significant drop, exceeding 16%. The session ended with a loss of more than 12%, down to €50, and a reduction in the company's value of approximately €1.3 billion. The session had already begun in the red after SEPI acknowledged on Wednesday night that a conflict of interest existed regarding the potential acquisition of EM&M. In a communication to the National Securities Market Commission (CNMV), the state-owned company stated that it had conveyed to Indra its "concern about the influence that the conflict of interest has on the analysis of this operation, despite the measures taken to mitigate it." He insisted that any conflict of interest between Indra and EM&E should be resolved before the transaction took place. For this reason, he requested that "this conflict of interest be resolved so that we can continue with the analysis of the transaction and make a decision that is as advantageous as possible for Indra."

Pressure on the Chairman

With this communication, the Spanish government was pressuring Ángel Escribano to step down as president of Indra, for which it already had a candidate, according to sources. Last Tuesday, rumors about Escribano's possible resignation caused the company's stock value to plummet. Escribano had reiterated that he had no intention of leaving his post. Following Thursday's board meeting, in a statement to the CNMV (Spanish National Securities Market Commission), EM&M (Escribano Mechanical and Engineering SLU) stated that, having reviewed SEPI's (State Holding Company for Industrial Participations) request, EM&M believes "that the circumstances do not currently exist to allow a potential transaction between Indra Group and Escribano Mechanical and Engineering SLU, therefore EM&M..." The company plans to hold an ordinary board meeting on the 25th, where it is assumed that the issue resolved at Thursday's extraordinary meeting will be addressed.

It is also assumed that the decision to postpone the operation was approved because SEPI, despite being the main shareholder, did not have a majority of votes, and Escribano had the support of other capital representatives, such as those from Amber Capital, owned by Joseph Oughourlian, the main shareholder of Prisa and currently at odds with the Spanish government. Regarding Indra, the Spanish Prime Minister, Pedro Sánchez, had stated that SEPI is working with the company to resolve the conflict of interest. "It's an issue related to a supposed conflict of interest problem, and it is SEPI that is working with Indra," Sánchez told the press upon returning from the European Council. Meanwhile, the First Vice President and Minister of Finance, María Jesús Montero, whose responsibilities include SEPI, defended Indra's role as a "strategic" company in an interview with RTVE and EFE, a company in which the Spanish government "will invest heavily." He added that the conflict of interest "was not present from the outset, at least not from the government's perspective," referring to the moment when the State approved Escribano's appointment as president of Indra.

A few weeks ago, Indra published a protocol with the CNMV (Spanish National Securities Market Commission) regarding the possibility of proceeding with this operation. The protocol stipulated that Ángel Escribano would abstain from making any decisions and would recuse himself from the process, and that the potential takeover would be led by the CEO, José Vicente de los Mozos. However, this initiative has not calmed the State's concerns, which is redoubling its pressure for Escribano to step down as chairman, a position he helped secure in January of last year when his predecessor, Marc Murtra, became chairman of Telefónica.