Indra moves to dominate Spain’s defence sector, but raises conflict-of-interest concerns

MADRID – Spanish technology and defence giant Indra began formal merger negotiations with defence company Escribano Mechanical & Engineering (EM&E) on Thursday, a move that would consolidate the country's growing defence sector.

The proposed deal has sparked serious conflict-of-interest concerns in Spain, however, as Indra President Ángel Escribano is also a co-owner of EM&E – along with his brother, Javier.

The situation has raised eyebrows in Madrid, with critics suggesting that Escribano may in essence be facilitating the acquisition of his own company. According to consultancy reports commissioned by Indra, EM&E is valued at €1.5 billion.

Indra had not responded to questions from Euractiv as of publication time.

The deal comes amid Indra’s broader ambition, outlined in its 2024 strategic roadmap, to become Spain’s dominant national defence champion within the next decade. The company is well-positioned to benefit from the recent push by Spanish Prime Minister Pedro Sánchez government to boost defence spending, announced last April.

Currently, defence contracts account for 12% of Indra’s total revenue.

Merging with EM&E, one of Spain’s leading private defence contractors, would reinforce Indra’s defence portfolio, which already includes majority stakes in Tess Defence (51%) and ITP Aero (9.5%), as well as new strategic partnerships with German armaments giant Rheinmetall.

In breach of the law?

EM&E, meanwhile, is Indra’s largest private shareholder with a 14.3% stake. The state-owned SEPI fund holds another 28%, raising concerns about anti-competitive behaviour and market concentration that could potentially breach Spanish and European Law.

"From a competition law perspective, the possible merger raises significant questions about market access and fair competition," Francisco Marcos, a professor at Madrid’s IE Law School, told Euractiv.

He warned of potential “foreclosure effects” and “self-preference in public tenders”, especially as both firms already play major roles as state contractors.

Marcos stressed the need for thorough regulatory scrutiny to ensure "efficiency and competitive plurality" in a strategically vital and publicly funded sector.

Technology firm SAPA, Indra's third shareholder (7.94%) has come out against the merger, and independent board members reportedly also plan to vote against the transaction. Some considered resigning from the board over the potential conflict of interest and the risk of legal liability in potential shareholder lawsuits.

El País reported on Thursday evening after the initial talks that Indra will create an independent commission to decide on the purchase, to “guarantee good corporate governance”.

Indra's executive board is set to vote on the merger on 23 July.

(cs, bts)