Spain is analyzing the Saudi telecommunications company's (STC) purchase of a 9.9% stake in the Spanish telecommunications firm Telefonica to ensure that its strategic interests are not compromised, which could signal potential hurdles in completing the transaction. Acting Economy Minister Nadia Calviño stated on Wednesday in Brussels that STC contacted the Spanish government last Tuesday to notify them of the deal that will position the Saudi company as the largest shareholder in the Spanish telecoms firm.
Calviño told reporters when asked about the Saudi company's move, "Telefonica is a strategic company for our country, and as a government, we will apply all necessary mechanisms to prioritize the defense of our strategic interests." Madrid has the capacity to block STC's purchase of a stake in Telefonica, which provides services to the defense industry in Spain, and the government can intervene in acquisitions for stakes exceeding five percent.
Reuters reported that a government source familiar with the views of the administration indicated that Madrid "will exercise its authority" to approve or reject the operation, recognizing its supervisory power due to Telefonica's ties to national defense. Acting Minister of Social Rights Ione Belarra stated on the platform X (formerly Twitter) that "public oversight of strategic companies is an urgent matter from a democratic and security perspective." Belarra added that the state-owned holding company SEPI should acquire a 10% stake in Telefonica in the coming years "to lead the digital transformation."
The General Union of Workers welcomed STC's move in a statement, describing it as "a capital influx that enhances everything related to the company's future investments... ensuring the future of its workers." However, the largest labor union in Spain urged "caution and a sense of responsibility," promising to remain vigilant regarding the subsequent actions taken by the Saudi company.
On Tuesday, STC announced that it had acquired a 9.9% stake in Telefonica for 2.1 billion euros ($2.25 billion), following the trend of other companies from the Middle East investing in telecommunications firms in Europe and Latin America. STC is the largest telecommunications operator in Saudi Arabia, with 64% ownership by the Public Investment Fund, the kingdom's sovereign wealth fund, which is a key driver of Crown Prince Mohammed bin Salman's Vision 2030 to diversify the economy away from oil dependence.
At the same time, European telecommunications companies like Telefonica are struggling to pay off their significant debts amid a slowdown in telecom growth and massive investments needed to keep up with the latest technologies such as 5G. The company has attempted to raise funds through the sale of its office properties, pressured the European Commission to allow market consolidation, and battled with tech companies to secure funding for infrastructure investments. Telefonica's total debt is approximately twice its market value of around 22 billion euros.
Analyst Paolo Piscatori from BB Forsight noted that "this provides support that Telefonica desperately needs amid hefty investments to deploy 5G broadband networks in key markets," adding that this will create opportunities for both companies to work more closely together for greater efficiency and to launch new products globally.
The government has introduced legislation to prevent acquisitions of 10% or more in publicly listed companies by entities outside the European Union and the European Free Trade Association, attempting to guard against hostile takeovers of companies that have seen their values decline since the COVID-19 pandemic. Recently, the threshold for government intervention was lowered to 5% for defense-related companies.
Calviño stated that Madrid is analyzing the defensive mechanisms related to the deal, the telecommunications sector, and its relation to Spain's security and defense, as well as STC's stake and its voting rights and participation in the board of directors and other decision-making bodies within the company. She added, "Fortunately, since we came into government, we have strengthened the mechanisms to protect our strategic interests." Telefonica is listed as a defense provider on government websites, supplying "systems and equipment" for the military and satellite services for the defense ministry's space arm.
