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Telefónica's board has ousted its long-time chair José María Álvarez-Pallete in a surprise move following the arrival of Saudi Arabia's STC as a shareholder in the Spanish telecoms group.
Telefónica announced on Saturday that it fired Álvarez-Pallete and replaced him with defense chief Marc Murtra “due to the new structure of the company” and the desire of some shareholders for a “new level” of leadership.
The Spanish government had a decisive role in this move, which came after the investor movement started with the announcement of the STC telephone group that it would acquire 9.9 percent of Telefonica by 2023.
STC is controlled by the majority of Saudi Arabia's wealth fund and the move surprised Spain as the first investment in one of its biggest companies by a Gulf state.
In response, Spain increased its own Telefónica to 10 percent as a counterweight.
Álvarez-Pallete was called to a meeting at the offices of Prime Minister Pedro Sánchez on Friday to be told he would be fired, according to a person familiar with the situation.
Telefónica's board met to agree on the decision on Saturday afternoon. It chose to poach Murtra from another state-owned company – Indra, a defense group known for its radar systems, where he was chairman.
STC said it wanted to partner with Telefónica, praising the Spanish group's “excellent infrastructure assets” and cutting-edge technology in areas such as artificial intelligence and the internet of things.
STC's investment in Telefónica represents a strong return for the company to invest abroad after a period of retreat since its first foray into acquiring stakes in telecoms in India, Indonesia and Malaysia more than 15 years ago. The company exited most of the investment but retained a stake in Malaysia's Maxis.
However, as the Saudi wealth fund PIF seeks to grow rapidly as part of the kingdom's plan to transform its economy in recent years, STC has begun to look for opportunities to expand beyond its core market in the Gulf region where they operate telecoms in Kuwait and Bahrain. more than Saudi Arabia. Tawal, a subsidiary of STC, has acquired a tower base worth €1.22bn from the United Group in 2023 for assets in Bulgaria, Croatia and Slovenia.
Telefónica, with a capitalization of 22bn euros, is seen as a strategic company because it is involved in national security issues and cyber defense, but is seen by some investors as a bureaucracy.
During Álvarez-Pallete's nine years at the helm, Telefónica's shares fell nearly 50 percent at a time when the European telecommunications sector was struggling. Last year it lost its position as the largest telecommunications provider by consumer number in Spain when Orange and MásMóvil merged.
The ousted chairman, who worked at Telefónica for 26 years and led the company since 2016, had gone to Saudi Arabia at least once to discuss the future of Telefonica with the management of STC.
STC does not have a seat on Telefónica's 15-member board but is expected to seek to fill the vacancy with one of its candidates.
In September 2023, the Saudi group revealed that it had acquired 4.9 percent of Telefónica and bought derivatives that gave exposure to another 5 percent of the company's shares. He asked for permission from the Spanish government to raise 9.9 percent in derivatives and it was granted in November.
After its move, Sepi, a Spanish state-owned company, acquired a 10 percent stake in Telefónica. The investment arm of the Caixa Foundation, which is close to the government and tied to lender CaixaBank, also raised 10 percent. Long-time shareholder BBVA, another bank, owns 5 percent of Telefónica.
Despite being fired, the company said Álvarez-Pallete has accepted the board's request to step down as a director. The board unanimously expressed “deep gratitude to him” for his “many services and extraordinary effort, dedication and contribution during his long career at the club”.