Government tightens control over Telefónica, setting conditions for STC entry | Companies

The government conditioned its approval on the acquisition of a 9.9% stake in Telefónica by the Saudi telecommunications company STC, with particular attention to preserving the Spanish character and stability of the great homeland of telecommunications. To this is added the entry of the state through the Spanish Society of Industrial Participation (SEPI) with 10%, the appointment of a director and the possible appointment of a second representative, which strengthens the role of the director in the company.

Economy Minister Carlos Bodi himself said at a press conference after the Council of Ministers meeting that the executive agreement was subject to a number of conditions that the Saudis accepted. In this way, Moncloa ensures “that the strategic element and operational autonomy of Telefonica is guaranteed so that national interests are protected and this critical infrastructure is protected,” according to the minister.

The executive branch had veto power over the deal under the so-called takeover shield, which gives it the power to veto the takeover of more than 10% of strategic companies by foreign investors, or more than 5% if the target firm is linked to the world of security and defense, as in the case with Telefonica. This regulation also allows you to impose the terms of the transaction.

This option was chosen in the case of Telefónica and STC, as well as the entry of the Australian fund IFM into Naturgy or the acquisition of GIP by BlackRock, resulting in the largest fund manager on the planet in the gas company. This was also the reason for the merger of Orange and MásMóvil or Zegona’s acquisition of Vodafone’s business in Spain.

Presumably, the set of conditions is similar to the previous ones, at least with regard to employment or the maintenance of headquarters in Spain. Also, to keep the company on the stock market, maintain a sensible policy regarding dividend payments, investments in Spain or excessive debt. These terms will also include protection of decisions that affect national security and a guarantee that corporate and financial headquarters will remain in Spain, according to a report by this newspaper last week.

In addition, in other transactions in the telecommunications sector, the executive branch tried to ensure that investments were preserved. Regarding the merger of Orange and MásMóvil, the then Minister of Digital Transition, José Luis Escrivá, assured that the approval of the operation was accompanied by “an industrial plan of the resulting organization, which is really ambitious and has a very medium-term focus.” with a very strong investment policy in the coming years in fixed and mobile digital infrastructure.”

In the case of Vodafone and Zegona, their approval was linked to a guarantee of service continuity and implied future investment, mainly in 5G mobile coverage. The government will also ensure that at Telefonica capital fluctuations do not impact the telco’s investments, just as at Naturgy it has brought IFM and BlackRock to the capital to maintain a commitment to renewable energy.

In any case, this move means that the executive branch is increasing its role at Telefonica in two senses. On the one hand, these conditions will determine both the voting policy of Southern Telecom at shareholder meetings and certain decisions of its future representative on the board of directors.

On the other hand, the announcement by STC of the takeover of this 9.9% stake in Telefónica – more than a year ago, in September 2023 – prompted the state to return to the capital of the company, decades after its full privatization. Thus, through SEPI, it acquired 10% of the capital, a role similar to the one the Saudis will play. The Spanish telecommunications company is fully protected by the strengthening of Criteria Caixa as a partner, whose share has reached another 10%, adding to BBVA’s 4.8%. As a result of these transactions, SEPI has appointed a representative (the same number that STC is expected to have), in which it has appointed Carlos Ocaña, although given the stake it has in the capital, it may consider proposing a second director.

Thus, an institution that is dependent on the Ministry of Finance already plays an active role in the company’s decisions. He has voting rights and voting rights on the highest administrative body, as well as the ability to vote at meetings as one of the major shareholders. The conditions now imposed are nothing more than a strengthening of its role in the telecommunications sector.

The President of Telefónica himself, José María Álvarez-Pallete, said at the congress of directors of CEDE, which took place this Thursday in A Coruña: “We are waiting for the details of the decision of the Council of Ministers. UTK has not told us anything new since last year, when it announced its participation in Telefónica, and therefore I cannot give you any more news about its interests. In any case, one of Telefonica’s greatest strengths is its shareholders, large and small, who provide stability and support for the operator and reflect investor confidence in Telefonica’s strategy.”