The surprise emergence of Saudi Telecom (STC) into Telefónica has unleashed a growing wave of concern about the role that the Arab fund will play in a company considered strategic by the Government. There are even those who demand a direct entry into the capital of the operator, as occurred in its day, before the total privatization 24 years ago. A formula that The Executive itself, through the SEPI, recognizes that it is evaluating.
The Government has in its hand the so-called ‘anti-takeover shield’, an evolution of the old gold stock. A tool of interventionism and veto of undesirable shareholders for the States that is used in other Spanish firms such as Indra, IAG, Redeia, Hispasat or Enagás, although no longer in telecommunications. The curious thing is that the main European countries do have shareholder control of their operators. How do States use this tool in their telecoms?
Despite the attempt to liberalize the European telecommunications sector by Brussels among the large companies in the sector, the weight of the State still remains very high. In the Swedish Telia, the State has 39.5%; in Deutsche Telekom the German Government has 30.46% (16.6% is held by the public bank KfW and the State 13.8%); in Orange 23% (13.4% the Government and the Bpifrance sovereign fund 9.6%); in Telecom Italia 9.81%, the Dutch KPN 1%… Outside the EU, the Norwegian State has 58.4% of the shares in Telenor and Switzerland controls 51% of the capital of Swisscom. In Europe, among the large companies, only the British Vodafone and BT and the Portuguese Nos and Meo are 100% private.
Gold stock is the best-known mechanism for stopping stock expansion plans considered hostile, but there are several strategies that pursue the same thing. In stock market jargon, all these types of measures are called ‘poison pills’, ranging from the use and incentive of generating a takeover war through like-minded buyers, to capital increases with preferential subscription rights from the majority shareholder to a discounted price compared to the takeover bid… These are some examples that show the application of the golden share or the implementation of the so-called ‘poison pills’ in Spanish business history, but also in Europe and even in the United States.
The ‘telecos’, in the eye of the hurricane
The Dutch telephone operator KPN has one of the best-known ‘poison pills’ in the sector that disrupted the strategic plans of the Mexican magnate Carlos Slim in 2013. The Aztec company América Móvil, which Slim controls, bought about 30% of KPN in 2012 and launched a takeover bid in 2013 for the entire operator. Its majority shareholder, The KPN Foundation neutralized the operation by issuing 4,258 million shares class B preferred securities, which represented almost 50% of the group’s entire share capital. Slim had to back out of the operation and declared himself defeated in October 2013, although he still maintains 21% of the telecom’s shares.
The Italian State maintains a golden share in TIM since its privatization and he exercised it in 2016 to stop the growing influence of the French group Vivendi, which took almost 24% of its capital. The Government of Matteo Renzi demanded the presence on the board of directors of a figure who enjoyed his approval and protected “the essential interests of defense and national security.”
Rajoy already stopped AT&T
The recent history of Spain also shows that governments of different political stripes have adopted laws to stop enemy takeovers. The Court of Justice of the European Union (CJEU) declared illegal the so-called ‘anti-EdF’ or ‘Rato law’ in 2008, which was designed in 1999 to stop the entry of the French electricity company into Hidrocantábrico. The rule established that any foreign company with public capital that wanted to buy more than 3% of a Spanish electricity company had to request authorization from the Government. In 2013, the Government of Mariano Rajoy already stopped a purchase of Telefónica by the American telecom company AT&T for a value of 70,000 million euros and the assumption of a debt of 52,000 million. From its privatization until its privatization, the Spanish State maintained 2005 golden shares in Iberia, Telefónica, Repsol and Endesa.
BBVA and Telefónica, protagonists in Italy and Portugal
In 2005, BBVA launched a takeover bid for the Italian Banca Nazionale del Lavoro (BNL) to take control of the sixth bank in the transalpine country. At that time, Italy did not have the legal mechanisms to stop an operation of such magnitude, however Its central bank found a white knight in the insurer Unipol to maintain the Italian nature of the entity by purchasing 59% of its shares and in the process frustrate Francisco González’s expansion plans throughout Europe.
Telefónica itself has been a victim of the application of gold shares. In 2010, the Portuguese State blocked the sale of the Brazilian telecom company Vivo by its parent company Portugal Telecom to the Spanish operator. In 2011, after the financial rescue by the EU, the Portuguese Government eliminated this privilege. The company led by José María Álvarez-Pallete has also used local partners to launch friendly takeover bids and avoid intervention by regulators, as it did in 2007 when it entered Telecom Italia (TIM) with 24% of the capital after reaching an agreement with the banks Mediobanca, Intesa Sanpaolo and the insurance company Generali.
France resisted PepsiCo
“Danone is the sexiest woman in the world agri-food market. Before companies like Coca Cola, Nestlé and Kraft, we are business dwarfs. But Danone is sexier. “The possible takeover of PepsiCo is a threat to French national sovereignty,” warned the president of Danone, Franck Riboud, in 2005. The American group gave up buying the yogurt manufacturer in the face of a state operation in which France activated all its resources. legal and media through President Jacques Chirac himself, opposition parties and unions.
The Government urged Danone to even contact white knights such as Crédit Agricole or Nestlé to launch a counter-takeover to stop Pepsico’s attempt to take control of the dairy company. The French multinational also has tough regulations in place to protect itself from possible hostile or unwanted shareholders: no shareholder can access more than 12% of voting rights if they do not own at least 66% of the capital.
Netflix and Twitter
Legislation outside Europe also moves between laws that protect free competition and the general interest; even in the US there are companies that use ‘poison pills’ to stop the entry of opportunistic funds. In 2020, around twenty Wall Street listed companies approved measures of this magnitude, such as the oil company Occidental Petroleum. In China, the State has just acquired gold shares in the tech giants Tencent and Alibaba.
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The best-known cases of poisoned pills on the other side of the Atlantic involve technology like Netflix or Twitter. In the case of the audiovisual content platform, in 2012 it approved a ‘poison pill’ that consists of the possibility of launch a capital increase if an investor acquires 10% or more of the company’s shares, or 20% in the case of institutional investors, with the aim of making the purchase very costly for the hostile shareholder. This plan was launched after the entry into the share capital of activist shareholder Carl Icahn, who defended that Netflix could be “tasty bait.” for the rest of the technology giants on the New York Stock Exchange.
In April 2022, Tesla founder Elon Musk bought 9.2% of Twitter shares. Shortly after this purchase, the South African businessman announced an offer to buy 100% of the social network at a price of $54.20 per share. Twitter’s board of directors announced the launch of a ‘poison pill’ that allowed shareholders to buy newly issued shares on the market at a discounted price. This would dilute Musk’s shares, which would reduce and weaken his ownership stake, meaning he would have to pay more to buy Twitter, although finally the cat out of the water.