Saudi Arabia acquires 9.9% of Telefónica and becomes its largest shareholder
In a deal that has taken the markets by surprise, the leading Saudi Arabian telecommunications operator, STC Group, announced on Wednesday 6 September that it had acquired a 9.9% stake in Telefónica, making the company, controlled by the Saudi government, the largest shareholder in the company headed by José María Álvarez-Pallete.
According to information published by STC Group, on 5 September the company acquired a 9.9% stake in Telefónica for 2.1 billion euros.
The total number of shares acquired is 569,295,356 and the transaction was financed through a combination of equity and bank debt.
According to STC, Telefónica is the leading telecommunications operator in Europe and has a unique, world-class portfolio of infrastructure and assets, as well as state-of-the-art technology platforms.
The Saudi operator's statement also highlights Telefónica's significant presence in three of the most important European markets (Spain, Germany and the UK) as well as in Latin America, especially Brazil.
As for the reasons for the transaction, STC said: "This investment is in line with the company's strategy of growth and expansion through the acquisition of stakes in strategic value-added assets in promising markets, as well as benefiting from these operations to support the company's growth, expansion and return on capital. In addition, this transaction will allow STC to invest in new markets and maximise the return of capital to its shareholders in a sustainable manner".
Major shareholder
With this surprise transaction, STC becomes Telefónica's largest shareholder. Behind it are BBVA (4.87%), BlackRock (4.48%), CaixaBank (3.5%), Vanguard (3.02%), Criteria Caixa (2.40%), Norges Bank (1.95%) and Capital Group (0.88%).
It should be noted, however, that the Saudi company will hold for the time being only 4.99% of the voting rights, corresponding to the direct acquisition of Telefónica shares. The remaining 5%, acquired through financial instruments, is pending authorisation by the Spanish government, as Telefónica has been registered on the Ministry of Defence's list of strategic suppliers.
This registration means that no investor can acquire more than 5% of the capital of a strategic supplier without the permission of the Ministry of Defence, after analysis by the Council of Ministers.
In the event that such permission is refused, STC would still own 9.9% of Telefónica's capital, although it would only have voting rights for 4.9%.
According to statements by STC Group CEO Olayan Alwetaid, it does not appear that the Saudi company will intervene in the management of the group, as it has confirmed its confidence in the current management team, headed by its chairman, José María Álvarez-Pallete.
It remains to be seen how STC will be represented on the company's Board of Directors. Bearing in mind that representative shareholders such as BBVA and CaixaBank have one seat on the board, respectively, it would be logical to think that STC would have at least two. The Saudi company has stated that it is still too early for these considerations.
Reactions
The deal has been greeted with surprise by the markets, despite the fact that Telefónica and STC already had a prior relationship, in the form of a strategic collaboration agreement to explore potential business opportunities together, signed earlier this year.
The Telefónica share, which traded at 3.75 euros at the close of trading on 5 September, opened the 6 September session at a price of 3.88 euros, although in the hours that followed it began to lose momentum.
The Spanish government has reacted cautiously to an operation that affects a company considered strategic and historically representative of the Spain brand.
Although the purchase operation does not reach the 10% that would require prior authorisation by the government, the latter reserves the possibility of authorising the operation, as STC needs to receive the green light for the remaining 5% of the purchase, which has been carried out through financial instruments.
The deal comes at a key moment for Telefónica, which on 8 November will present its new strategic plan, based on technology services provided to other companies.
The largest operator in the Middle East
STC Group is 64% owned by the Saudi Public Investment Fund, the sovereign wealth fund headed by Crown Prince Mohammed bin Salman.
It is the largest telecommunications company in the Middle East, with a market capitalisation of 49.2 billion euros (more than double that of Telefónica). It is present in 11 countries and has 170 million customers.