Spain to buy up to 10% in Telefonica following Saudi entrance

The Spanish government will acquire a stake of up to 10% in Telefonica through the state holding company SEPI in a counterbalance to the acquisition of a large stake in the telecoms giant by Saudi Arabia's STC. "The presence of a key public shareholder will reinforce the company's ownership stability," the Budget Ministry said in a statement on Tuesday.

The Spanish government will acquire a stake of up to 10% in Telefonica through the state holding company SEPI in a counterbalance to the acquisition of a large stake in the telecoms giant by Saudi Arabia's STC.

"The presence of a key public shareholder will reinforce the company's ownership stability," the Budget Ministry said in a statement on Tuesday. SEPI said it would complete the acquisition of shares while minimising the impact on the share price. It would not give further details. A 10% stake has a current market value of around 2 billion euros ($2.20 billion).

Telefonica declined to comment. STC built a 9.9% stake in Telefonica worth 2.1 billion euros ($2.23 billion) in September. In late October, a month after STC's announcement, SEPI said it was considering whether to buy a stake in Telefonica.

With a long-term commitment, SEPI's participation will provide Telefonica with a "greater shareholding stability for the company to reach its objectives and, therefore, it will contribute to safeguarding its strategic capabilities," the SEPI added. It said Telefonica was of "crucial importance" for the Spanish economy, research, security, defence and the public well-being in general.

STC's holding consists of 4.9% of Telefonica's shares and financial instruments that give it another 5% in so-called economic exposure to the company. As Telefonica is considered a defence service provider, the Defence Ministry has a say in acquisitions and holdings between 5% and 10% unless the buyer commits not to request a seat on the board.

The government has promised to carry out a thorough evaluation before approving STC's stake. The SEPI announcement came after the market closed in Madrid, with Telefonica shares 0.75% off on the day at 3.565 euros. So far this year they have accumulated gains of just over 6%. Meanwhile, Telefonica American Depositary Receipts jumped 4% higher in New York.

STC has still not requested authorisation from the Spanish government to exercise the voting rights corresponding to the financial instruments. It has said it would exercise those rights after obtaining the necessary regulatory approvals. The Saudi telecoms company has said it does not intend to acquire control or a majority stake in Telefonica.

The Spanish government has three months to rule on the matter once the request has been submitted. ($1 = 0.9111 euros)

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