The Saudi Telecom group intends to acquire 9% of Telefónica’s shares. A business operation that would not attract more attention if it were not for the fact that it is a Spanish company, strongly internationalized, which holds a significant market share position in a strategic sector such as telecommunications, and which may end up under the control of a foreign shareholder, whose ownership is the government of a sovereign country, Saudi Arabia.
The history of Telefónica is not isolated. In my view, it has notable similarities with the case of Endesa. Two state companies that achieved a notable internationalization before being privatized, that continued to grow in international markets once they were private and that have ended up (we will see what happens in the case of Telefónica) in the hands of foreign shareholders majority owned by governments of other countries .
It is worth remembering the case of Endesa; In 2005 Gas Natural (now Naturgy) launched a takeover bid for the main Spanish electricity company. Let us remember that those were times when the political environment was heated by the incipient Catalan issue and by the loss of power of the PP after the 2004 elections. The reaction of the president of Endesa, Mr. Pizarro (fleetingly aspiring for Minister of Economy for the PP) , was to appear in public with a Spanish Constitution in hand in order to defend the supposed Spanishness of the company. You see where we come from. The reaction was to look for what is known as a white knight to counteract the Gas Natural takeover bid, and they turned to the German company EON (participated by the German government). In 2009, after more political-business disputes with other actors such as Acciona, the company was left in the hands of Enel, owned by the Italian State, which in 2014 assumed the assets of the electricity company in Latin America and left Endesa, another time, framed almost exclusively in the Spanish market.
This situation, which Endesa has gone through and may happen to Telefónica, is, to a large extent, the result of the accelerated privatization process that occurred during the Aznar governments. I explain.
In the eighties, the governments of Felipe González reorganized the public sector inherited from the dictatorship. These were years in which industrial reconversion involved the sale of numerous state-owned companies, which generated notable social tension, with the aim of reducing the burden that these companies posed on the public coffers. However, some that operated under a public monopoly or semi-monopoly, such as Endesa and Telefónica, remained in the hands of the State, although with some partial sales to private investors. The government ordered them under the Teneo Group. In 1994, the then Minister of Industry, Juan Manuel Eguiagaray, maintained that “it would be a terrible policy to privatize what is profitable if it is fixing a series of things.” Álvaro Espina, Secretary of State in 1991, maintained that “particular attention should be paid to public companies in analyzing reality and Spanish industrial policy, since one of the peculiarities of our industry is precisely the scarcity of large companies.” that exercise a relevant position in their corresponding market on a global scale, and the practical non-existence of multinationals.”
These were times when the neoliberal postulates of the Washington Consensus were established as a rule of faith, and forced Latin American governments to privatize and liberalize companies in strategic sectors such as telecommunications and energy, with the aim of raising funds to pay the debt. that these countries had been dragging on for decades. It was in this context that state multinationals were developed in Spain; Companies such as Telefónica, Endesa (and others such as Repsol or Iberia), mostly public, embarked on a landing in countries such as Chile, Argentina, Peru, Brazil or Mexico. In 1989 Telefónica acquired the Chilean Telephone Company; in 1991 Entel in Argentina, and in 1994 CPT Peru. The neoliberal argument that private management is better than public management seems not to have been considered in those operations, because the companies continued to be state-owned… but from another state.
When Spain showed its willingness to enter the eurozone, it realized the difficulties of meeting the Maastricht criteria, especially with regard to debt and public deficit. That is why the Aznar government promoted an ambitious privatization plan that would allow it to obtain resources to meet these criteria. Although the main argument at that time was that privatizations were going to improve efficiency, self-interestedly linking (as has been seen in the electricity and telecommunications markets) an axiom of dubious veracity such as the one that privatization meant introducing competition.
Once these types of companies were privatized, most accelerated their internationalization plan, first in Latin America and later in more mature economies, such as Europe. It must be remembered that this internationalization was also promoted as a defensive strategy to avoid being acquired through an increase in size, since in the globalized context these companies were vulnerable. But this strategy did not work for Endesa, it almost didn’t work with Repsol (the Mexican state-owned Pemex almost did it) and now it could happen to Telefónica. These companies, with Telefónica among them, have great fragmentation in their social capital, and that is their main vulnerability, not their business volume.
In countries like France, Italy or Germany, the concept of a strategic sector has led them to be more cautious regarding the loss of state control. Here, Mr. Aznar’s government wanted to enter the euro by selling the assets, and now we find ourselves with a globalization that has also developed state multinationals. We already know that the Saudi Government is not the same as the Italian Government, but both can control strategic sectors of the Spanish economy. The Spanish Government has a difficult role to play, especially because Saudi Arabia, which needs to diversify its investments in anticipation of less dependence on oil by advanced economies, is not a source of economic stability nor is it an example to follow on a democratic level. We will see if Telefónica returns to being a state-owned company… from Saudi Arabia.
