Indra, EM&E resume merger talks as Spain seeks to block German bid, report says

April 9 (Reuters) - Spain's state holding company SEPI has resumed talks to merge Indra IDR.MC with privately held defence firm Escribano Mechanical & Engineering (EM&E) in a deal the Spanish government deems strategically important, newspaper El Economista reported on Thursday.

With the move, Madrid seeks to block a competing bid for EM&E by Germany's Rheinmetall RHMG.DE by folding EM&E into Indra - in which SEPI holds a 28% stake - the report said, citing sources familiar with the operation.

The merger's final structure has not been decided and could include cash as well as shares, El Economista added. It said Indra had previously examined up to six alternatives.

Indra and Rheinmetall declined to comment on the report while neither SEPI nor EM&E responded to requests for comment.

The same newspaper reported in late March that Rheinmetall was studying a preliminary bid for EM&E after talks with Indra collapsed over conflict of interest concerns. According to El Economista, EM&E's owners value their company at no less than 2.3 billion euros ($2.7 billion).

Siblings Angel and Javier Escribano, who each own half of EM&E, also have a 14.7% stake in Indra.

Angel Escribano resigned as Indra's chairman on April 1 following government pressure over worries the family was accruing too much influence within Spain's defence sector. Meanwhile, his brother Javier retains a seat on Indra's board.

The Spanish government has been taking a more active role through SEPI in companies it considers strategic. Last year, it helped replace Telefonica TEF.MC CEO Jose Maria Alvarez-Pallete with Marc Murtra, who previously helmed Indra.

($1 = 0.8563 euros)