Telefonica Chief’s Departure Seems Imminent

[Madrid, SPAIN] An ongoing investigation into alleged insider
trading by Juan Villalonga, president of Telefonica, may lead to his
replacement within a week, say several Spanish sources.

Last month, Spain’s securities and exchange commission, the Comision
Nacional de Mercado de Valores (CNMV), reopened an investigation into
Villalonga’s alleged use of privileged information to buy Telefonica stock
options in 1998. Ever since then, talk of his immediate replacement has
been mounting.

Telefonica stock plummeted in the third week of June, but regained force
once Villalonga appeared to be holding on to his post for the time being.
Spain’s business dailies Cinco Dias and Expansion have both cited sources
within the company saying Villalonga’s departure is imminent, and may occur
before the next board meeting on July 26. Telefsnica has not confirmed
this.

According to EL PAIS, Spain’s leading daily, Villalonga and his top
associates have reportedly been meeting in Los Angeles this week to
discuss, among other things, his possible departure. According to the
rival daily ABC, Telefonica’s president may have agreed upon a four billion
peseta ($22 million) settlement to terminate his contract.

“[Villalonga’s departure] is logically not great news for the company,”
said Luis Padron, an analyst with Banesto Bolsa in Madrid.

“On the other hand, if a leader is making it so the company has to stall on
agreements, business decisions, strategies and the like, then there’s not
much good in keeping him in this position.”

Telefonica is in the midst of several deals worldwide, including bids for
UMTS mobile phone licenses across Europe, the purchase of Dutch production
company Endemol, and the buyout of several Latin American telephone
operators. Telefonica affiliate Terra Networks is in the midst or a merger
to form Terra-Lycos.

Villalonga was appointed head of Spain’s former telephone monopoly by
Spanish president Jose Maria Aznar as part of a liberalization of the
telecommunications sector. In less than two years, Telefonica’s CEO has
taken a once small company to international prominence and given it a market
capitalization greater than that of rival European players like British
Telecom and Telecom Italia.

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