“Preserving Strategic Autonomy”. This has been the mantra repeated again and again by the main ministers of the Spanish Executive since last Tuesday the Saudi STC shook the foundations of Telefónica with the purchase of up to 9.9%. To achieve that position, which would allow him to hold two positions on the council and a lot of power, the operation must be validated by the Council of Ministers. But it comes almost a quarter of a century after the complete privatization of the Spanish operator. Now this business expansion from the East in telecommunications comes with only two of the large companies with relevant state capital: Orange and Deutsche Telekom. Both have dodged this arrival for now.
The first objective of the Arab operators was ‘big game’ because of the size of the company, but ‘small game’ because of the political implications. Etisalat landed more than a year ago in Vodafone, which is not the old monopoly of that country and did not represent a relevant problem with the United Kingdom. They took advantage of the troubled river in the company, with activist funds shaking the management and the weakness of the former CEO, Nick Read – who ended up resigning at the end of December -. There were no problems reaching 15% and starting the period of demands: from positions on the board to operational alliances between both companies.
The second of these objectives, Telefónica, has indeed been ‘big game’ in both fields. First because of the size of the company and then because it was the country’s former monopoly. Until the 1990s it was a public company. The privatization process that started the government of Felipe González and culminated in that of José María Aznar did not allow the State to maintain a minority but relevant position in the shareholding. Something similar happened in other companies such as Indra – in the latter they were able to recover 20% from Bankia a decade ago. Despite this “state ascendancy” that has been maintained until today, there is only the so-called “anti-opas shield” and the limit of 10% voting rights as protections.
The rest of the former monopolies have maintained relevant state positions in their shareholdings that, at least for now, have served to avoid operations like that of the Spanish one. Deutsche Telekom ran it in several batches. It subsequently reduced its position in several smaller placements and convertible bond issues. Since the mid-2000s it has remained around 30% – a direct position of 14% and 17.7% with the state bank KfW that is today valued at more than 30 billion euros.
the two cases
It has also preserved that percentage against many voices that warned of potential conflicts of interest against the rest of the telecommunications operators -regulated in part by the country’s Executive Branch- or of the need for this income to improve the networks or to reinvest it in other . sectors. In the middle of the last decade, the unions warned of a possible takeover bid or unexpected partner entry. Today the German company arrives with a shareholding only with the State itself as a reference shareholder, through these two participations. The Japanese technology giant Softbank has 4.51% from the merger of T-Mobile with Sprint in the US and from the repurchase of part of the merged company by the Germans.
The other case is that of Orange. The former France Telecom carried out its privatization at similar times to its European counterparts. Little by little the French State was progressively reducing its position. Today it stands at around 23% of all titles. And that disinvestment, as in Deutsche Telekom, has also been on the table on occasion. In late 2017, former CEO Stéphane Richard warned that the group was ready to examine a collection of ‘state’ actions. He said it months after the Minister of the Economy, Emmanuel Macron, suggested that this “sine die” position would not be maintained – something that was corrected by the French state holding company APE.
In both cases these are relevant stock positions, which do not prevent the arrival of an unsolicited investor, but which complicate them significantly. All the industry sources consulted agree that this position is useful to ward off unforeseen ‘visits’. Both Orange and Deutsche Telekom have not experienced first-hand disruptions like those experienced by Vodafone, Telefónica or British Telecom itself, although in the latter case it is a European operator (the French tycoon who owns the fourth operator in that country, Iliad). . There are those who also point to the ‘golden action’ of France as another factor that must be taken into account.
BT and Telecom Italy
Other former monopolies have experienced different situations. In the case of the former Telecom Italia (TIM), the state’s position is more reduced. Today Casa Depositi e Prestiti has a little less than 10%. But in recent times it has experienced a whole shareholding war -Vivendi is the main partner with almost 24% of the titles-. That struggle opened the door, despite the state presence, to the arrival of the KKR fund to propose a public acquisition offer (OPA) several years ago. Finally, it was losing fuel due to the rejection of the State and also of Vivendi itself. Now, the State has announced its intention to renationalize the operator’s fixed telephone network. In August, two decrees were approved that allow the acquisition of up to a 20% stake in the fixed telephony network.
At British Telecom, the situation is also very different. The privatization carried out more than two decades ago ended with a total exit from the State in the mid-1990s. The company has experienced several upheavals in recent years. But since the pandemic, its actions have not stopped moving. Little by little, the French magnate Patrick Drahi (Iliad) has been increasing his position to exceed 24% at the end of last April, which has forced him to reiterate to the Government that he has no intention of making a public offer of acquisition. (OPA) by the operator valued at just 11,000 million pounds. It is not the only movement. The group is, according to what the British press published in July, on high alert before a potential acquisition by Deutsche Telekom, which has 12%.
The ban has been opened on telecommunications operators after years of weakness in a ‘hypercompetitive’ market. The Saudi offensive, which started with Vodafone and has continued at Telefónica, is the first step. Everything indicates that depending on the result there will be more approaches from other operators before a potential consolidation dance. Until now, the big ex-monopolies that continue to have strong public capital have dodged the wave. What is not clear is how long it will last.
