On 5 September 2023 Saudi Telecom (STC) announced it had acquired 9.9% of Telefónica through shares and derivatives. What Spain’s foreign-investment law says and how the government has responded.
Saudi Telecom Company (STC) announced late on 5 September 2023 that it had acquired 9.9% of Telefónica’s share capital for around €2.1 billion, about $2.25 billion. With that stake, the Saudi group, 64% owned by the Public Investment Fund (PIF) sovereign wealth fund and listed on the Riyadh stock exchange, becomes the largest shareholder of the Spanish operator, according to the financial press, ahead of BBVA, BlackRock or CaixaBank.
How it was done
The purchase has two parts. The first, 4.9% of the capital, is already held as shares. The second, 5.0%, was acquired through financial instruments that give economic exposure to those shares; STC will obtain the voting rights only through physical settlement, once it has the necessary regulatory approvals. On 6 September Telefónica’s shares were up by around 3% in the first hours of trading.
Telefónica told the securities regulator, the CNMV, that STC had informed it of the deal the day before, and said it took note of STC’s “friendly approach” and its support for the management team. STC’s chief executive, Olayan Alwetaid, said the group has no intention of acquiring control or a majority stake.
What the law says
In Spain, a direct investment by an investor resident outside the EU and EFTA that acquires 10% or more of the share capital of a Spanish company in certain sectors needs the government’s prior authorisation. Those sectors include critical infrastructure, such as communications, and critical technologies, such as telecommunications. The regime, set out in article 7 bis of Law 19/2003, was introduced in 2020 and, without authorisation, the investment has no validity or legal effect.
With 9.9%, STC sits just below that general threshold. But there is a second front: Telefónica supplies services to the defence sector, and the foreign-investment royal decree that came into force on 1 September 2023 keeps a specific control in that area, with exemptions for investments below 5% and, subject to conditions, for those between 5% and 10%. The financial press reported that a stake above 5% required clearance from the Ministry of Defence and that the Council of Ministers would have to approve the second tranche.
The government’s position
The caretaker government responded on 6 September. First Vice-President Nadia Calviño said in Brussels that STC had told the government the day before, that the deal has a “friendly nature” and that the executive will apply all necessary measures to protect strategic interests, having tightened foreign-investment controls in recent years. Government spokeswoman Isabel Rodríguez called Telefónica a “strategic operator” and said the government would be vigilant.
A reference shareholder with under 10% does not control the company but carries weight in its governance: it often seeks board representation and shapes the balance with other large shareholders. The practical lesson for investors is to read CNMV filings on significant holdings carefully, because a stake can be split between shares and derivatives, as in this case. For anyone investing in Spain from outside the EU, the rule is to check before closing whether the deal needs authorisation, because the general period for a decision is three months and, without authorisation, the investment has no validity. Ask your adviser how this applies to your case.
Staying a tenth of a point below the threshold does not stop the government from examining the deal.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
