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Saudi Telecom(STC) Buys Telefónica Stake

BusinessSaudi Telecom(STC) Buys Telefónica Stake

Saudi Arabia’s STC Group (7010. SE) has acquired a 9.9% stake in Telefonica (TEF.MC) valued at 2.1 billion euros ($2.25 billion), marking a significant move to become the leading shareholder in the Spanish telecommunications giant. STC, the largest telecoms operator in the kingdom, revealed this investment after the market closed on Tuesday. This holding comprises 4.9% of Telefonica’s shares and financial instruments, providing an additional 5% economic exposure to the company. STC intends to secure voting rights for this 5% interest held through financial instruments, pending regulatory approvals.

STC’s CEO, Olayan Alwetaid, views this as an attractive investment opportunity, leveraging its strong balance sheet while maintaining its dividend policy. It’s important to note that STC does not intend to acquire control or a majority stake in Telefonica. Telefonica has acknowledged STC’s investment as ‘friendly.’ The acquisition of this position was facilitated with the assistance of U.S. investment bank Morgan Stanley (MS.N).

Linklaters provided legal advisory support for STC, while Allen & Overy represented Morgan Stanley. Morgan Stanley, Linklaters, and Allen & Overy declined to comment.

Telefonica’s shares experienced a 2.9% increase as of 0725 GMT in Madrid, reaching 3.86 euros. Meanwhile, STC’s shares remained relatively stable, with a minor 0.1% increase, opening at 39.60 riyals ($10.56) in Riyadh.

STC, Saudi Arabia’s largest telecoms operator, also owns subsidiaries and holds stakes in companies operating in Kuwait and Bahrain. The majority ownership of STC, accounting for 64%, lies with Saudi Arabia’s Public Investment Fund (PIF), a central component of Crown Prince Mohammed bin Salman’s Vision 2030 initiative to reduce the economy’s reliance on oil.

In a broader context, Gulf telecom groups are expanding their overseas investments. For instance, Emirates Telecommunications Group (e&), or EAND.AD increased its stake in Vodafone Group (VOD.L) to 14% in March.

This marks STC’s second venture into Europe’s telecoms market, following its agreement to purchase tower infrastructure valued at 1.2 billion euros from United Group in April. Telefonica is gearing up to present a new strategic plan on November 8, emphasizing growing the company’s free cash flow, which its CEO has projected to reach 4 billion euros this year.

Like its European counterparts, Telefonica has encountered profitability challenges due to fierce competition and the substantial investment required for 5 G’s next-generation mobile technology infrastructure. To fund 5G and optic fiber initiatives, Telefonica has been divesting stakes in more mature businesses such as submarine cables or mobile masts.

As of Tuesday’s close, Telefonica’s shares were valued at 3.75 euros, resulting in a market capitalization of approximately 22 billion euros. It’s noteworthy that the company’s worth exceeded 110 billion euros during its previous peak in 2008. Spanish bank BBVA held the largest shareholding in Telefonica as of the last year, with a 4.9% stake.


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