Telefónica postpones any decision on STC until the Government’s resolution is known

The long-awaited board of directors of Telefónica held this Wednesday, the first after the announcement of the entry into the capital of the Saudi Telecom Company (STC) operator, has been calmer than expected. The president of the Spanish multinational, José María Álvarez-Pallete, has reassured the main shareholders (La Caixa, BBVA and the Blackrock fund) about the “friendly” intentions of the Saudi group, which has informed them that it will not interfere in the management of the company, according to sources familiar with the meeting.

STC’s intention is to request approval from the Government of Spain to make effective the purchase of 5% of the capital that it has parked in financial instruments and, together with the 4.9% that it already officially holds, consolidate its position as the largest shareholder of the company. Spanish operator. Only when it has this official permission, the Saudi company will ask for a position on the board, although it has reiterated its support for the current management team, according to sources consulted by this newspaper.

Looking ahead to the board meeting, the president of Telefónica had first-hand information, since he has held at least two meetings with the STC leadership. He traveled to Riyadh on September 7 with the CEO, Ángel Vila, two days after the Saudi group announced its entry into the capital of Telefónica. And last week, on September 18, he met again with the CEO of STC, Olayan Alwetaid, during a meeting of the GSMA, the global organization of telecommunications operators, whose current presidency is held by Pallete.

However, the entry of STC was not the main issue on the agenda of this council meeting, which was ordinary, since it was called in advance like every last Wednesday of each month. Although on this occasion the Saudi operation has focused the attention of the directors, particularly the independent ones, since the proprietary directors (BBVA and La Caixa) were aware. Pallete has already had conversations with Carlos Torres, president of BBVA, and Isidro Fainé, president of Criteria Caixa and vice president and board member of Telefónica, to explain the Saudi move, which he officially found out about on the same day it occurred. La Caixa and its investment arm Criteria own 5.98% of Telefónica’s capital. Blackrock has 4.98%, and BBVA 4.87%.

The attitude of the board and managers of Telefónica is to “wait and see” because they understand that now the ball is in the court of the Government, which must decide on the entry of STC, according to the aforementioned sources, although the Saudi group still has not formalized that request to the Council of Ministers, as Nadia Calviño, first vice president and minister of Economic Affairs and Transformation, admitted this week.

The Government has the power to paralyze the takeover of 9.9% of Telefónica by STC, 64% owned by the Saudi State through the FIP sovereign fund, for reasons of national security, since the Spanish multinational is a strategic company. with contracts with the Ministry of Defense in telecommunications and cybersecurity. It can even apply a 2003 rule (article 7 of Law 19/2003), which would allow it to suspend, almost at will and without any limit, the entry of the Saudis into the capital of Telefónica. However, everything indicates that the Executive will authorize the operation, but subjecting it to a series of conditions similar to those applied in 2021 to the purchase of 23% of Naturgy Energy Group by the Australian fund IFM Global Infrastructure, according to EL PAÍS. .

These conditions include support for certain corporate policies, such as investment in important projects for the country; the maintenance of the headquarters and employment in Spain; a prudent dividend payment policy and an investment grade leverage ratio. In addition, the buyer would be obliged to abstain from supporting possible sales of critical assets or backing any offer to take the company private.

The Executive is aware that a frontal veto of the operation would send a very negative message to foreign investors such as the Public Investment Fund (FIP) of Saudi Arabia. The ability to mobilize this type of funds dependent on state capital has been revealed this week at the Annual Assembly of the International Forum of Sovereign Funds (IFSW) that took place in Madrid, and at the More than 200 representatives of 45 sovereign funds, institutional investors, companies and Spanish politicians, among others, participated.

Action movements

Given the entry of STC into Telefónica’s capital, the operator’s main shareholders are positioning themselves with purchases of securities in the market. Criteria Caixa has acquired more than 750,000 shares in recent months, with a total investment of 3.1 million euros and prices ranging from 3.73 euros at the start of the month to just over four euros in the latest transactions. as communicated to the National Securities Market Commission (CNMV). On the contrary, the American fund Blackrock, which does not have a representative on the board, recently increased its short position in Telefónica to 0.6%, from the previous 0.5%. In this way, the North American investment fund is betting on a drop in the price of the Spanish operator, which on September 19 closed above four euros for the first time since May 10.

Telefónica shares ended the day this Wednesday at 3.865 euros, down 1.7%, although with a revaluation of 12.3% so far this year and 3% compared to 3.75 euros in the which closed on September 5, the day that STC’s emergence into the company was made public.

Precisely, the revaluation of the share to reward the trust of shareholders is the first objective that Álvarez Pallete has set in the new strategic plan for the years 2023-2026 that he will present on November 8 at the company’s first Investor Day in twelve years. When Pallete became president of Telefónica on April 8, 2016, the share was trading at 9.31 euros, more than double the current price and far from the 20 euros it reached in 2007.

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