Telefonica Jumps on Spain’s Plans to Build a €2 Billion Stake

Telefonica Jumps on Spain’s Plans to Build a €2 Billion Stake

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(Bloomberg) — Telefonica SA’s shares jumped the most in almost three years after the Spanish government announced plans to buy a stake that could be valued at more than €2 billion ($2.2 billion) countering a stake that Saudi Arabia’s built in the telecommunications carrier. 

The shares rose 4.6% to €3.73 at 9:50 a.m. in Madrid on Wednesday after earlier rising as much as 7.2%, the biggest intraday jump since Jan. 2021. 

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Sepi, the Spanish government’s investment vehicle, will buy as much as 10% of Telefonica’s shares to provide “greater shareholder stability” and protect the former telecom monopoly’s “strategic capacities,” the firm said in a regulatory filing on Tuesday. Ministers had signed off on the investment in a cabinet meeting earlier that day.

“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.”

Telefonica said in response to the announcement that it was focused on executing its strategy and didn’t comment further. 

Spain’s aggressive move counters Saudi Telecom Co.’s surprise investment announcement earlier this year, which could make the Middle Eastern state-backed company Telefonica’s largest shareholder.

The position marks a major shift for Spain, which has proved more reluctant in recent years than other European nations to intervene in markets and take ownership of corporations. The Spanish government sold its last stake in Telefonica more than 20 years ago, ending decades of public ownership of the company. But the Saudi investment spurred the Spanish government to reconsider. 

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Read More: Saudi Telecom Buys $2.25 Billion Stake in Spain’s Telefonica 

There is a precedent for such ownership in Europe: Countries including France and Germany own stakes in their former phone monopolies. Still, government involvement can make business operations more complicated. Telefonica has operations across Latin America, for example, where the Spanish government has sometimes complicated diplomatic ties. 

While the market will react positively in the short term “in the long term, it may not be entirely positive from a corporate governance angle,” Bestinver Securities analyst Ignacio Arce said in an email. “It is very likely that this will become an issue that worries investors, especially foreigners.”

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 convert its derivatives position in Telefonica, representing roughly half of its stake, into actual shares. 

Read More: Spain Weighs Placing Conditions on Saudi’s Telefonica Stake Bid

Telefonica is considered strategically important because it provides services to the military and the defense ministry and Prime Minister Pedro Sanchez has said the government will safeguard national security and guarantee that foreign investors would not exceed limits “that would involve undue influence over strategic companies.” 

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