TEF, China Unicom to buy US$500mn of each other's shares to boost alliance

- Monday, January 24, 2011

TEF, China Unicom to buy US$500mn of each other's shares to boost alliance

Spain's Telefonica (NYSE: TEF) and Chinese operator China Unicom have agreed to buy US$500mn of each other's stock in efforts to reinforce a previous strategic alliance, according to a joint press release from the companies.

The companies' presidents - Cesar Alierta and Chang Xiaobing - have signed the agreement, which will see Telefonica increase its share in China Unicom to 9.7%, while leaving the Chinese company with 1.37% of TEF.

China Unicom will acquire 21.8mn Telefonica shares held by insiders for 17.16 euros each, the average trading price on the Madrid Stock Exchange over 30 days ending January 14 this year. Telefonica, for its part, will purchase shares in China Unicom worth the same amount from third parties over the next nine months.

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The companies said the agreement will reinforce their partnership and the end goal of their alliance, which is to strengthen cooperation in areas such as handset procurement, mobile platforms, multinational services, roaming and technology.

According to Alierta, through the alliance the companies will have a client base of 590mn, representing some 10% of the global population.

Telefonica, providing services in 25 countries, has a client base of 280mn. China Unicom, present in 31 provinces, municipalities and autonomous regions in China, has a total of almost 311mn mobile telephony, fixed telephony and fixed broadband clients.

The latest agreement will further a 2009 deal between the companies, in which each purchased US$1bn in the other's shares. At Telefonica's next general shareholders meeting, the company's directors will propose adding a China Unicom representative as a new board member.