Spanish govt to buy Telefonica stake worth as much as $2.2 billion

By Clara Hernanz Lizarraga and Joao Lima

The Spanish government plans to buy a stake in Telefonica SA worth as much as $2.2 billion, a bid to safeguard one of the nation’s most strategic assets as Saudi Arabia builds up its own position in the company.
 

Sepi, Spain’s investment vehicle, will buy as much as 10 per cent of Telefonica’s shares — a stake that may total more than €2 billion — in an effort to provide “greater shareholder stability” and protect the former telecom monopoly’s “strategic capacities,” the government said in a regulatory filing late Tuesday. Ministers decided on the investment in a cabinet meeting earlier that day.

The investment represents a surprisingly aggressive move by Spain to counter Saudi Telecom Co.’s plan to invest billions in Telefonica and emerge as the carrier’s biggest shareholder. If Sepi takes a 10 per cent stake in the Madrid-based company first, the government would instead become its biggest investor, eclipsing Blackrock Inc., Caixabank SA and Banco Bilbao Vizcaya Argentaria SA. The position would mark a major shift for Spain, which has proven more reluctant in recent years than other European nations to intervene in markets and take ownership of corporations. 

Telefonica rose 6.2 per cent per cent at the close in US trading Tuesday, the biggest rise in a year. 

“Telefonica is a leading telecommunications company both in Spain and internationally,” Sepi said on Tuesday. “It carries out a set of activities of crucial relevance for the economy, research, security, defense and the welfare of citizens.”

Spain had telegraphed that it may take a stake. Less than two months after state-controlled Saudi Telecom announced plans to buy 9.9 per cent of Telefonica for €2.1 billion, the Spanish government said it was performing an “exploratory analysis” of its own potential investment in the company. There is a precedent for such ownership in Europe: Countries including France and Germany own stakes in their former phone monopolies.

Telefonica “states it remains focused on the execution of the recently approved 2023-2026 Strategic Plan, announced at the Capital Markets Day on November 8, 2023, in order to continue creating value for its shareholders and providing the best-in-class service for its clients,” the carrier said in a statement late Tuesdya, in response to the government’s announcement.

Bloomberg reported in September that the Spanish government had also been weighing restrictions on Saudi Telecom’s investment plan, similar to those applied to IFM Global Infrastructure’s purchase of a stake in Naturgy Energy Group SA. STC is already required to obtain approval from the government to covert its derivatives position in Telefonica, representing roughly half of its stake, into actual shares. 

Saudi Telecom’s plan has sparked controversy in Spain, where Telefonica is considered strategically important because it provides services to the military and the defense ministry. Soon after the announcement in September, Prime Minister Pedro Sanchez said the government would safeguard national security and guarantee that foreign investors would not exceed limits “that would involve undue influence over strategic companies.” 

The Spanish government sold its last stake in Telefonica more than 20 years ago, ending decades of public ownership of the company. Telefonica had fallen 0.8 per cent in Madrid on Tuesday, beore the government’s announcement. Shares closed at €3.565, giving the company a market value of about €20 billion.