Saudi Telecom acquires 10% stake in Telefonica, Spanish government to protect strategic interests

Saudi Telecom acquires 10% stake in Telefonica, Spanish government to protect strategic interests

Saudi Telecom Co. (STC), the largest telecom operator in Saudi Arabia, has acquired a nearly 10% stake in Spanish telecommunications giant Telefonica (NYSE: TEF ) SA for approximately $2.25 billion, causing Spain to take action to preserve its strategic autonomy. As reported on Wednesday, the deal would make STC the largest shareholder of Telefonica.

STC's holding comprises of 4.9% of Telefonica's shares and financial instruments that give it another 5% in economic exposure to the company. The telecom operator plans to secure voting rights for that 5% interest held through financial instruments after receiving regulatory approvals. The Saudi government-controlled company purchased about 569 million shares and is using financial instruments that will hand it a 9.9% interest in Telefonica once approved by regulators.

The Spanish government was informed about the deal on Tuesday. Acting economy minister Nadia Calvino stated that the government is analyzing the purchase to ensure its strategic interests are defended, signalling a potential hurdle. "Telefonica is a strategic company for our country and as government we will apply all the mechanisms that are necessary to prioritize the defense of our strategic interests," Calvino said.

The Spanish government has had the power to block acquisitions of stakes of 10% or larger in listed companies by entities from outside the European Union and European Free Trade Association since the COVID-19 pandemic, which was implemented to protect companies whose value had plummeted from hostile takeovers.

The threshold at which the government can intervene was recently lowered to 5% for companies related to defense. Telefonica is listed as a defense provider on government websites, supplying "systems and equipment" to the army and satellite services to the defense ministry's aerospace arm.

Government spokeswoman Isabel Rodriguez stated that there are channels to preserve Spain's strategic autonomy that the government sets in motion. "Telefonica is not just an emblematic company but also a strategic one," she said.

The Spanish government must ensure that decision-making within a company handling sensitive data remains within Spain, acting Labour Minister Yolanda Diaz said on social media platform X , formerly known as Twitter.

Telefonica described STC's investment as "friendly" and its shares were up by 2% on Wednesday on the Madrid stock exchange while the blue-chip index Ibex-35 was down 0.4%.

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