Spain mulls block on STC's Telefonica buy

The Spanish government is at sixes and sevens over Saudi Telecom’s proposed acquisition of a 9.9% stake in Telefonica.

There has been vocal opposition to the move since Saudi Telecom, better known as STC, shared its decision to spend €2.1 billion to become the Spanish incumbent’s largest shareholder last week, including from one of the country’s leading government officials. Spain has the power to block the move, but deciding whether to exercise that power will be a tricky diplomatic and political balancing act.

The second vice president and acting labour minister in Pedro Sanchez’s government Yolanda Díaz publicly called for a block on the STC deal, triggering a response from Nadia Calviño, first vice president and economy minister, who is currently representing the Covid-stricken prime minister at the G20 summit in New Delhi. There was no clear answer from Calviño, but it’s plain to see that a government veto, or a string of conditions on the deal, could be on the cards.

“Spain is a serious country and since we came to power we have reinforced all the mechanisms to defend the interests of our country,” El Mundo – and various other Spanish news outlets – quoted Calviño as saying on the sidelines of the G20. “That is what we are going to do: analyse the transaction with the utmost rigour and activate the appropriate mechanisms to protect our general and strategic interests, given that Telefónica is a strategic company,” she said.

Calviño admitted she had not had the opportunity to speak to Saudi crown prince Mohammed bin Salman at the summit, but said she is in “constant contact” with Telefonica chief executive José María Álvarez-Pallete who has been to Saudi Arabia to meet with STC.

It’s a tough call for the Spanish government, which will look to balance a pro-foreign investment approach and the safeguarding of Spanish business interests with national security concerns and general unease over the arrival of an autocratic regime into a major domestic company.

As El Pais points out, the government has a number of mechanisms at its disposal should it seek to block the deal altogether, although it notes that the Saudi company is using Spanish advisors to help it sidestep an all-out veto. A more likely course of action is perhaps the imposition of conditions on the deal, which would avoid a head-on clash with Saudi Arabia and indeed other would-be foreign investors, but would also lead to a political confrontation with Diaz’s Sumar party, the paper notes.

It’s a thorny question and one that seems unlikely to be resolved imminently. El Pais expects “much technical and political discussion” to take place before any decision is announced.

In the meantime, Calviño has other considerations. She has emerged as the frontrunner, according to various European media outlets, in the race to be the next president of the European Investment Bank (EIB), a role that the EU’s Margrethe Vestager is also chasing.

The European Commission last week announced that Vestager would take a leave of absence from her role as competition commissioner in order to take part in the EIB’s selection process. Vestager and Calviño are widely tipped as most likely to succeed, but there are a further three candidates, from Italy, Poland and Sweden, who could yet come out on top. The result is likely to be announced in the next few weeks.

Telefonica’s Saudi question could take a little longer to answer.

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