Indra's bid to dominate Spain's defence sector faces backlash amid merger talks

Spanish technology and defence conglomerate Indra has entered formal merger negotiations with Escribano Mechanical & Engineering (EM&E), a move aimed at consolidating Spain’s defence sector.

While the merger could strengthen Indra’s strategic position in national and European defence, it has sparked significant controversy due to a potential conflict of interest at the highest level of corporate leadership.

The core concern arises from the fact that Indra’s president, Ángel Escribano, is also a co-owner of EM&E, along with his brother, Javier. Critics told the Euractiv publication that that the company president is effectively orchestrating a deal to buy his own company, raising ethical and legal red flags. According to consultancy evaluations commissioned by Indra, EM&E is valued at approximately €1.5 billion.

Indra has not officially commented on the allegations or responded to media inquiries. However, the company’s interest in EM&E aligns with its recently unveiled 2024 strategic roadmap, which lays out ambitions to become Spain’s dominant national defence champion within the next decade. This aspiration is supported by the Spanish government’s recent decision to increase defence spending, offering fertile ground for Indra to expand.

Currently, defence contracts represent 12% of Indra’s total revenues, and acquiring EM&E would significantly boost its defence capabilities. Indra already has a majority stake in Tess Defence (51%), holds 9.5% of ITP Aero, and has formed new partnerships with major European players like Germany’s Rheinmetall.

According to the German defence giant, Indra is the designer for the thermal cameras and the manufacturer of the Leopard 2E combat system in Spain under license from Rheinmetall Electronics, and is the supplier of the Lince BMS currently in service in Leopard 2 in Spain. Indra is also the designer of the Maestre Mission System currently contracted in the Spanish Army VCR 8x8 and is the main design authority for the Spanish BMS.

The merger would further solidify Indra’s hold on Spain’s defence infrastructure. EM&E is a top-tier private defence firm in Spain and also Indra’s largest private shareholder, owning 14.3% of Indra. The state-owned SEPI fund holds an additional 28%, which has triggered wider concerns about market concentration and potential violations of Spanish and European competition law.

Adding fuel to the controversy, SAPA, another major Indra shareholder (7.94%), has publicly opposed the merger, citing governance and legal concerns. Some independent board members are also reportedly against the merger and have even considered resigning due to fears of legal liability in the event of shareholder lawsuits. The overlap of interests has led some to question the integrity of the deal.

Indra plans to establish an independent commission to assess the merger in order to ensure transparency and uphold corporate governance standards. The merger vote is scheduled for 23 July, and it will be a decisive moment for Indra’s future. The outcome could either pave the way for the creation of a consolidated Spanish defence giant or entangle the company in prolonged legal and reputational battles.

By Nazrin Sadigova