The purchase of 9.9% of Telefónica by STC has been presented at all times by the Saudi operator as a “friendly” operation, but since last Tuesday several of the steps taken by the company have raised suspicions about your true medium and long-term plans. Thus, in the Spanish political and business world there are doubts that the company controlled by the Arab State has no intention of increasing its participation and participating to a greater or lesser extent in the administration and management of the group chaired by José María Álvarez-Pallete.
STC has proclaimed its “confidence” in Telefónica’s management team and strategy, has stated that it has no intention of “acquiring control or a majority stake” in the company, and has assured that it “will not participate or interfere” in its management. However, the secrecy with which the operation was carried out has generated suspicion, since the Saudi company prepared and executed it for months with the help of the investment bank. Morgan Stanley without notifying the Government and itself telephone until shortly before announcing it publicly.
Ambiguity over entry into the council
Another key element is his ambiguity regarding his intention to join or not join the board of directors of Telefónica, in which he could belong. one or two seats. The Saudi operator has postponed the decision and has assured that it will not analyze it at the moment. However, the small print of the decree The ‘antiopas’ shield from last July (which came into force on September 1) gives clues that STC has left the door open to be able to claim its incorporation into the highest governing body of the Spanish company.
The decree establishes in its article 18 that foreign investment operations exceeding 5% of the capital in companies with activities related to National Defense must be subject to prior authorization from the Council of Ministers (STC aspires to exercise the political rights corresponding to 9, 9% of the acquired capital) unless in a document in public writingthe acquiring company “reliably undertakes” to “not use, exercise or assign its voting rights to third parties”, nor to form part of “any administrative bodies of the listed company”.
STC, for its part, has made it clear that intends to request authorization of the government. Thus, he has stated that will not execute financial derivatives through those who control 5% of Telefónica until “obtaining the necessary regulatory authorizations.” In other words: requesting these authorizations would not be necessary if STC did not intend to exceed 5% of the shares, nor exercise its voting rights for 9.9% of the capital, nor enter the board of directors.
Will control be attempted later?
Another element that raises suspicions is the fact that the company has proclaimed its intention to not raise its participation beyond 9.9% that you have already purchased. “We have no intention of acquiring control or a majority stake in Telefónica. This is a great investment opportunity that allows us to use our solid balance sheet and at the same time maintain our attractive dividend policy,” said his CEO, Olayan Alwetaidin the press release that the company distributed to announce the operation last Tuesday.
Precisely on August 1, during the presentation of the semi-annual results, the company’s vice president of corporate finance, Ali Alharbi, put the general purchasing strategy of the Saudi operator in black and white. “Our objective is have control over an asset (purchased), but this may not happen in all cases. (…) In general, our plan is to have the majority (of the capital of the companies acquired), but this could change based on the target assets,” he said.
This message, by leaving room to not take control in exceptional cases, is consistent with the announcement of intentions regarding Telefónica. However, it also makes it clear that STC’s predominant desire is to control the companies in which it participates. In fact, in business media it is highlighted that investments that seek only financial profitability – such as the one that the Saudi operator claims to have made – are normally carried out by so-called institutional investors (such as pension or investment funds) and not companies in the same sector, as happens in the case of STC and Telefónica.
A very timely new decree
The fact that the purchase operation of 9.9% of Telefónica was notified to the CNMV on September 5, taking advantage of the entry into force (on September 1) of the new foreign investment control decree also arouses suspicions. Why was the operation not notified before September 1? What is there in the new decree that the Government approved on July 5 (with entry into force from September 1) that could be more advantageous for the Saudi operation?
In reality, the purchase operation of 9.9% of the capital has been carried out in two tranches. On the one hand, Saudi Telecom has acquired a direct participation of 4.9% of the shares of the Spanish company. On the other hand, another 5% has been obtained indirectly through financial instruments, with the help of the Morgan Stanley investment bank.
At first, the Saudi group will only be able to exercise the voting rights corresponding to that direct participation of 4.9% (one tenth below the state control limit of 5%). To obtain voting rights for the remaining 5% You will have to wait to obtain regulatory permits.
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The 1999 regulations for the control of investments linked to Defense (which was in force until September 1) required authorization to be requested from the Government for participations of 5% or more. In that it is no different from the new regulation.
The advantage it gives the new regulation is that if the Government does not give the ‘ok’ to the political rights of the shares up to 9.9% of the capital, STC, at least, will be able to retain those corresponding to 4.9% (which makes it the first shareholder and which could give him a position on the board of directors) waiting to find the most opportune time to get rid of the remaining 5% package in the financial market in an orderly manner. “Under the previous legislation it would have been an ‘all or nothing’ for the 9.9% package. The new regulation may allow STC to retain a smaller stake. It will be like remain at Telefónica with your hand tied, although it is clear that this was not its initial objective,” explains graphically one of the foreign investment regulation experts consulted.