29th Mar 2006 18:23
Telefonica SA29 March 2006 RAMIRO SANCHEZ DE LERIN GARCIA-OVIES General Secretary and Secretary of the Board of Directors TELEFONICA, S.A. TELEFONICA, S.A., pursuant to Section 82 of the Securities Market Act (Leydel Mercado de Valores), hereby communicates the Securities Market NationalCommission (Comision Nacional del Mercado de Valores) the following PUBLIC NOTICE The Boards of Directors of TELEFONICA, S.A. and TELEFONICA MOVILES,S.A. have agreed, in their meetings held today, the approval of a Merger Planregarding the merger between TELEFONICA MOVILES, S.A. and TELEFONICA,S.A., resulting in the extinction, upon dissolution without liquidation ofTELEFONICA MOVILES, S.A., and the en bloc transmission of its net worth toTELEFONICA, S.A., which shall acquire, by universal succession, all rightsand obligations of TELEFONICA MOVILES, S.A. The exchange ratio for the shares of the companies participating in the merger,determined on the basis of the current value of the corporate assets ofTELEFONICA MOVILES, S.A. and TELEFONICA, S.A., shall be (with nosupplemental cash compensation) of four (4) shares of TELEFONICA, S.A., eachhaving a face value of one euro (€1), for every five (5) shares of TELEFONICAMOVILES, S.A., each having a face value of fifty cents of euro (€0,50).Additionally, the Merger Plan sets forth the distribution by TELEFONICAMOVILES, S.A. of an extraordinary dividend against the distributable reservesfor a gross amount of euro 0.085 per share and an interim dividend, alsoextraordinary, against the result obtained from January 1 to March 28, 2006 fora gross amount of euro 0.35 per share. In compliance with the terms of Section 226 of the Commercial RegistryRegulations (Reglamento del Registro Mercantil), a copy of the Merger Plan,enclosed herewith as Annex 1, shall be filed with the Commercial Registry ofMadrid. Moreover, the press release to be distributed today by the Company is enclosedherewith as Annex 2. All the above-mentioned is communicated for the relevant purposes in Madrid, onMarch 29, 2006. ANNEX 1 Free translation of the Merger Plan originally issued in Spanish. In the event of discrepancy, the Spanish-language version prevails. MERGER PLAN OF TELEFONICA, S.A. AND TELEFONICA MOVILES, S.A. Madrid, March 29, 2006 Free translation of the Merger Plan originally issued in Spanish. In the eventof discrepancy, the Spanish-language version prevails. For the purposes of the provisions of Sections 234, 235 and related sections ofthe Corporations Act, approved by Royal Legislative Decree no. 1564/1989, ofDecember 22 (hereinafter referred to as the "Corporations Act"), theundersigned, in their capacity as members of the Boards of Directors ofTELEFONICA, S.A. (hereinafter referred to as "TELEFONICA") andTELEFONICA MOVILES, S.A. (hereinafter referred to as "TELEFONICAMOVILES"), have drawn up the present merger plan (hereinafter referred to asthe "Merger Plan" or the "Plan"), which shall be submitted for approval of theshareholders at their respective General Shareholders' Meetings pursuant to theprovisions of Section 240 of the abovementioned Corporations Act. The contentsof such Plan are as follows. 1. INTRODUCTION 1.1. Reasons for the merger The situation in the telecommunications markets in general and in the mobile telecommunications markets in particular, has varied significantly in the last years. These changes in the competition environment, technology and clients' needs have brought about the convenience to amend the strategic model on which to base the growth of the business that TELEFONICA and TELEFONICA MOVILES have been developing independently until now. Synthetically, these changes have been particularly apparent in the following areas: a. There have been major changes in the market and in competition, aimed at allowing the commercial distribution of combined offers including fixed and mobile telephony, broadband and audiovisual services that include (i) the appearance of great mobile operators that enjoy the benefits of scale and scope economies, (ii) the competition of operators that combine scale benefits with an integrated offer of fixed and mobile services, (iii) the appearance of several services providers without differentiating the network or device through which they are connecting, or (iv) regulatory changes, which are aimed at allowing the entry of new commercial competitors, thus encouraging the establishment of virtual mobile operators or increasing the broadband offer by making it compulsory to allow clients to use the access loop. b. Significant technological changes that can be summarised as follows: (i) a tendency to develop - fixed and mobile - telecommunication networks based on the so called "IP Protocol", in such a way that both the establishment of communication networks and the development of related services will develop in this IP environment, thus removing most of the barriers existing between mobile and fixed network services enabling significant scale economies in the future investments of these networks, together with the corresponding savings in networks and platforms; (ii) the development of new hybrid terminals that can connect fixed and mobile networks and access all types of multimedia contents; and (iii) the development of third generation mobile networks with voice, data, internet and multimedia contents. c. Finally, from the demand side, clients are starting to see mobile phones as an indispensable item in their voice communications, not only in terms of mobility. Likewise, the fast penetration of the use of the Internet is producing a considerable growth of broadband technology and an increasing demand for these means of access to be available from fixed or mobile terminals indistinctly. In conclusion, increasingly more and more clients demand services and solutions for communication, information and entertainment in their fixed broadband access and at the same time they require equivalent services and solutions through mobile telecommunications. The changes mentioned above have had a fundamental impact in fixed and mobile operators in the last few years, forcing them to make their business plans and their strategies progress in order to acquire a higher flexibility which allows a faster adaptation to the market and, consequently, a higher competitivity and future growth. In this context, the Boards of Directors of TELEFONICA and TELEFONICA MOVILES believe that the focus in a strategy of higher orientation to clients' needs relating to communication, entertainment and information services as a whole and, more specifically, for each specific client segment, combining the communication platforms available in each market in the most optimum manner will produce a very positive effect, ensuring the growth in the penetration of mobile and fixed broadband services, and a higher clients' fidelity by means of a wider offer of new services and solutions, reinforcing the competitive position and allowing a greater acceleration of the growth pace, especially fundamental in markets with higher penetration. Likewise, it will increase the efficiency in the use of infrastructures, especially concerning the development of the fixed and mobile broadband, thus providing our clients with more possibilities of use and, therefore, more value to the shareholders of TELEFONICA and TELEFONICA M(C)MOVILES and facilitating the achievement of a profitable and sustainable growth. The merger proposal between TELEFONICA and TELEFONICA MOVILES responds to these needs of adapting their current business strategy to the new competitive environment described above. The Boards of Directors of both companies consider that the planned merger is the most efficient mechanism to face the new demands from clients, the technological change and the new competitive environment in the market, resulting into a higher value growth for the shareholders of TELEFONICA and TELEFONICA MOVILES, and allowing the shareholders of TELEFONICA MOVILES to become shareholders of TELEFONICA, thus consolidating the shareholding basis of both companies. 1.2. Structure of the transaction The legal structure selected for the integration of businesses is a merger pursuant to the terms of Article 233 et. seq. of Corporations Law (Ley de Sociedades Anonimas). The planned merger will take place specifically through the acquisition of TELEFONICA MOVILES (acquired company) by TELEFONICA (acquiring company), with the termination, through dissolution without liquidation, of the former company, and the en bloc transmission of all its assets to the latter company, which, through universal succession, will acquire the rights and obligations of TELEFONICA MOVILES. As a result of the merger TELEFONICA MOVILES's shareholders will receive and exchange of shares of TELEFONICA, pursuant to the terms specified below. The merger of TELEFONICA MOVILES with the parent company of the TELEFONICA Group has notable advantages. The most pertinent ones consist of ensuring liquidity for TELEFONICA MOVILES's shareholders, inasmuch as, in exchange, they will receive shares of TELEFONICA, which probably are the most liquid ones on the Spanish market. It is also noted that, within the framework of the planned merger and as a transaction aimed at reorganising its participation, it is foreseen that TELEFONICA purchases on the date hereof the stake of nine hundred and twenty seven million nine hundred and seventeen thousand six hundred and twenty (927,917,620) shares of TELEFONICA MOVILES, which represent 21.427% of its share capital, that is currently owned by TELEFONICA INTERNACIONAL, S.A. Unipersonal, a company which, in turn, is wholly owned by TELEFONICA. This intra-group transfer allows that the shareholding stake of TELEFONICA in TELEFONICA MOVILES becomes totally a direct participation, avoiding the creation of indirect treasury stock as a consequence of the merger. The transaction shall be carried out at the average market price of the TELEFONICA MOVILES shares from the date of the initial public offering until the date of execution of this Merger Plan or, where appropriate, at the price authorised by the Spanish Stock Exchanges Company (Sociedad de Bolsas). 2. IDENTIFICATION OF THE ENTITIES PARTICIPATING IN THE MERGER 2.1. TELEFONICA (Acquiring Company) TELEFONICA, domiciled in Madrid, at calle Gran Via, no 28, which was incorporated for an indefinite time by means of a public deed executed before the Notary Public of Madrid Mr. Alejandro Rosello Pastor, on April 19, 1924, with the number 141 of his files. TELEFONICA adjusted its by-laws to the Corporation Law in force by means of a public deed executed on July 10, 1990, before the Notary Public of Madrid Mr. Miguel Mestanza Fraguero. TELEFONICA is registered with the Commercial Registry of Madrid, at Volume 12.534, Folio 21, Page M-6164. TELEFONICA's Tax Identification number is A-28015865. 2.2. TELEFONICA MOVILES (Acquiring Company) TELEFONICA MOVILES, domiciled in Madrid, at calle Goya 24, which was incorporated for an indefinite time by means of a public deed executed before the Notary Public of Madrid Mr. Jose Antonio Escartin, on February 14, 2000, with the number 582 of his files. TELEFONICA MOVILES is registered with the Commercial Registry of Madrid, at Volume 14,837, Folio 155 of Section 8, Page M-246786. TELEFONICA MOVILES's Tax Identification number is A-82573759. 3. MERGER EXCHANGE RATIO The exchange ratio for the shares of the entities participating in the merger,which was determined on the basis of the current value of the corporate assetsof TELEFONICA and TELEFONICA MOVILES, will be as described hereinafter(with no supplemental cash compensation): Four (4) shares of TELEFONICA, each having a face value of one euro (€1), for every five (5) shares of TELEFONICA MOVILES, each having a face value of fifty cents of euro (€0,50). The determination of the exchange ratio has taken into consideration thedividends that both companies are expected to distribute, to which reference ismade in Section 8 below. Credit Suisse Securities (Europe) Limited, as TELEFONICA's financial advisorfor this transaction, has expressed to the company's Board of Directors in itsfairness opinion that the agreed-upon exchange ratio is equitable forTELEFONICA's shareholders. For TELEFONICA MOVILES's part, MorganStanley & Co. Limited (financial advisor and assessor for this transaction) andLehman Brothers Europe Limited (assessor for this transaction), have expressedto TELEFONICA MOVILES's Board of Directors in its fairness opinion thatthe agreed-upon exchange ratio is equitable for TELEFONICA MOVILES'sshareholders other than its majority shareholder, TELEFONICA. 4. MERGER BALANCE SHEETS For the purposes set forth in Section 239.1 of the Corporations Act, the balancesheets for the merger shall be deemed to be the balance sheets of TELEFONICAand TELEFONICA MOVILES as of December 31, 2005. Such balance sheets havebeen prepared by the respective Boards of Directors on February 28 and 27,respectively, have been duly verified by the auditors of both companies and willbe submitted for the approval of the shareholders at the General Shareholders'Meetings of each of the companies that must decide on the merger, prior to theadoption of the merger resolution itself. 5. PROCEDURE FOR THE EXCHANGE OF SHARES The procedure for the exchange of shares of TELEFONICA MOVILES for shares of TELEFONICA shall be as follows: a. Once the merger has been approved at the General Shareholders' Meetings of both companies, the equivalent documentation referred to in Sections 26.1 d), 40.1 d) and related provisions of the Royal Decree 1310/2005, dated November 4, has been filed with the Comision Nacional del Mercado de Valores (the Spanish National Securities Commission, hereinafter referred to as the "CNMV"), and the merger public deed has been recorded with the Commercial Registry of Madrid, the TELEFONICA MOVILES shares will be exchanged for TELEFONICA shares. b. The exchange will take place beginning on the date indicated in the announcements to be published in one of the widely-circulated daily newspapers in Madrid, in the Official Gazettes of the Spanish stock exchanges and, as the case may be, in the Official Gazette of the Commercial Registry. A financial institution shall be appointed to act as an Agent for such purpose, and such institution shall be named in the above-mentioned announcements. c. The exchange of the TELEFONICA MOVILES shares for TELEFONICA shares will take place through the participants in Sociedad de Gestion de los Sistemas de Registro, Compensacion y Liquidacion de Valores, S.A. (Securities Registration, Clearing, and Liquidation Systems Management Company, also referred to as Iberclear) that are depositaries thereof, in accordance with the procedures established for the book-entry system, pursuant to the provisions of Royal Decree no. 116/1992, of February 14, and with the application of the provisions of Section 59 of the Corporations Act, to the extent applicable. d. Shareholders who hold shares representing a fraction of the number of TELEFONICA MOVILES shares designated as the exchange ratio may purchase or transfer shares in order to exchange them in accordance with such exchange ratio. Notwithstanding the foregoing, the companies participating in the merger may establish mechanisms for the purpose of facilitating the implementation of the exchange for those TELEFONICA MOVILES shareholders who own a number of shares which, according to the merger ratio, will not entitle them to receive a whole number of shares of TELEFONICA, including the appointment of a Fractional Agent. e. As a result of the merger, the TELEFONICA MOVILES shares will become null and void. It is noted for the record that, as of the date of this Plan, TELEFONICA isthe holder, either directly or indirectly, of four thousand and three millionnine hundred thousand seven hundred and forty nine (4,003,900,749) TELEFONICAMOVILES shares, representing 92.457% of its share capital and that saidparticipation, as set forth in Section 1.2 above, will be entirely direct on thedate of execution of the merger. Therefore, pursuant to the provisions ofSection 249 of the Corporations Act and of the regulations governing treasurystock, all the mentioned shares of TELEFONICA MOVILES that will be held byTELEFONICA will not be exchanged for shares of TELEFONICA. In addition, it is noted for the record that TELEFONICA MOVILES holds upto date one thousand five hundred and ninety nine (1,599) of its own shares intreasury. Additionally, regarding the hedging of TELEFONICA MOVILES's stock optionsplan (MOS Plan), TELEFONICA MOVILES has a call option over twenty millionnine hundred fifty seven thousand seven hundred and eighty four (20,957,784)shares of TELEFONICA MOVILES (the "Hedging Shares") owned by Caja deAhorros y Pensiones de Barcelona and Banco Bilbao Vizcaya Argentaria, S.A.,which were subscribed by such institutions in the terms of the reducedinformative prospectus verified by the CNMV on September 28, 2001. MOS Planended on last January 3, 2006 and is currently under liquidation, which willconclude before the execution of the projected merger, without prejudice ofwhich TELEFONICA will succeed TELEFONICA MOVILES in any pendingobligation resulting from the above-mentioned liquidation. TELEFONICAMOVILES will use the number of Hedging Shares required for the liquidation ofMOS Plan and the rest will be acquired by TELEFONICA MOVILES by exerciseof its call option against the above-mentioned financial institutions. TELEFONICA MOVILES's current shares in treasury, as well as those that maybe acquired by TELEFONICA MOVILES through the execution of theabove-mentioned call option (at the most, in this latter case, 20,957,784shares) will not be part of the exchange, in compliance with the provisions ofSection 249 of the Corporations Act and related provisions. 6. INCREASE IN TELEFONICA'S SHARE CAPITAL TELEFONICA will increase its share capital by the exact amount needed to makethe exchange for TELEFONICA MOVILES shares in accordance with the exchangeequation established in this Merger Plan. The increase will be carried out through the issuance of a precise number ofshares, each having a face value of one euro (€1), belonging to the same singleclass and series as the current TELEFONICA shares, as represented bybook-entry accounts, with the application, in any event, of the provisions ofSection 249 of the Corporations Act. In particular, the TELEFONICA MOVILESshares controlled by TELEFONICA will not be exchanged, and will be retired. The maximum amount of the capital increase to be carried out by TELEFONICApursuant to the established exchange ratio may be reduced through the deliveryto TELEFONICA MOVILES shareholders of shares held in TELEFONICA'streasury. The difference between the net book value of the assets received byTELEFONICA by virtue of the merger covered by this Plan and the face value ofthe new shares issued by TELEFONICA - adjusted, if necessary, by theproportion represented by the new shares of the total shares delivered inexchange - shall be treated as additional paid-in capital. Both the face value of such shares and the corresponding additional paid-incapital shall be entirely paid-up as a result of the en bloc conveyance of thecorporate assets of TELEFONICA MOVILES to TELEFONICA, which, through ageneral devise, shall acquire the rights and obligations of TELEFONICAMOVILES. 7. DATE FROM WHICH THE SHARES DELIVERED IN EXCHANGE WILL CARRY THE RIGHT TOPARTICIPATE IN CORPORATE EARNINGS The shares which may be issued by TELEFONICA in connection with the capitalincrease mentioned in Section 6 above, shall entitle their owners to participatein the corporate earnings obtained by TELEFONICA starting on January 1, 2006. Previously existing TELEFONICA shares and shares delivered or issued inconnection with the exchange will participate, with equal rights in proportionto the face value of each share, in distributions made after the public deed ofmerger is recorded with the Commercial Registry. 8. DIVIDENDS For the preparation of this Merger Plan and the determination of the exchangeratio indicated in Section 3 above, the Boards of Directors of TELEFONICA andTELEFONICA MOVILES have taken into consideration the followingdividend-payment plans: a. TELEFONICA plans to make the following distributions: i. Payment of a euro 0.25 gross interim dividend per share, against the results of fiscal year ended on December 31, 2005, which will be paid on May 12, 2006. This dividend was approved by the Board of Directors at the meeting held on February 28, 2006 and communicated to the market on the same day. Those shareholders of TELEFONICA MOVILES who become shareholders of TELEFONICA upon the merger will not benefit from said dividend. Consequently, it has been taken into consideration for the determination of the exchange ratio. ii. As communicated to the market on February 28, 2006, the Board of Directors of TELEFONICA has the intention to distribute an additional gross dividend of euro 0.25 per share during year 2006, by means of the approval of the relevant corporate resolutions. This dividend will in any case be paid after the registration of the merger at the Commercial Registry of Madrid. In contrast to the dividend mentioned in paragraph (i) above, both the shareholders of TELEFONICA and those shareholders of TELEFONICA MOVILES who will become shareholders of TELEFONICA upon the merger will benefit from this dividend. Consequently, this has not been taken into consideration for the determination of the exchange ratio. b. TELEFONICA MOVILES plans to make the following distributions: i. Previously communicated dividend: Payment of a euro 0.205 gross dividend per share of TELEFONICA MOVILES, charged against distributable profit for year 2005 and distributable reserves. The proposal of such distribution was approved by the Board of Directors during its meeting held on February 27, 2006 and communicated to the market on the following day. The effectiveness of the distribution is subject to the approval of the General Shareholders' Meeting of TELEFONICA MOVILES. Said dividend is expected to be paid on July 21, 2006 and, in any case, before the merger between TELEFONICA and TELEFONICA MOVILES is recorded with the Commercial Registry. Therefore, provided that only the shareholders of TELEFONICA MOVILES will benefit from such distribution, this has been taken into consideration for the determination of the exchange ratio. ii. Dividend proposed by the Board of Directors of TELEFONICA MOVILES for its approval by the General Shareholders' Meeting, within the framework of negotiation between TELEFONICA and TELEFONICA MOVILES, which effectiveness is subject to the approval of the projected merger by the General Shareholders' Meetings of both companies: • Payment of a euro 0.085 gross dividend per share of TELEFONICA MOVILES, charged against the issue premium reserve and other distributable reserves. The Board of Directors of TELEFONICA MOVILES, during its meeting held on March 29, 2006, has agreed to submit this proposal to the General Shareholders' Meeting of TELEFONICA MOVILES for its approval. • Payment of a euro 0.35 gross interim dividend per share of TELEFONICA MOVILES, charged against the results obtained from January 1 to March 28, 2006. The Board of Directors of TELEFONICA MOVILES, during its meeting held on March 29, 2006, has agreed to submit this proposal to the General Shareholders' Meeting of TELEFONICA MOVILES for its approval. Both of the two above-mentioned proposals are also subject to the approval of the merger by the General Shareholders' Meetings of both companies. In the event that such proposals are approved by the General Shareholders' Meeting of TELEFONICA MOVILES, and upon fulfillment of the above-mentioned condition, the payment of the relevant dividends (jointly amounting to 0.435 gross euros per share of TELEFONICA MOVILES) will be accomplished on the same date as the date foreseen for the payment of the previously communicated dividend, referred to in Section 8 (b) (i) above, i.e. on July 21, 2006. Consequently, only TELEFONICA MOVILES's shareholders will benefit from this distribution and thus it has been taken into consideration for the determination of the exchange ratio. 9. DATE OF THE ACCOUNTING EFFECTS OF THE MERGER January 1, 2006 is hereby established as the date from which the TELEFONICAMOVILES transactions shall be deemed for accounting purposes to have takenplace on behalf of TELEFONICA. 10. SPECIAL RIGHTS There are no special TELEFONICA MOVILES shares, nor any special rights,other than the shares. Nevertheless, it is noted that, as stated in Section 5above, TELEFONICA MOVILES's stock option plan (MOS Plan) ended on January3, 2006 and is currently under liquidation, which will conclude prior to theexecution of the projected merger, without prejudice of which TELEFONICA willsucceed TELEFONICA MOVILES as the entity bound by any possible pendingobligation resulting from the above-mentioned liquidation. The TELEFONICA shares that are delivered to the TELEFONICA MOVILESshareholders pursuant to the merger contemplated in this Plan shall not give theholders thereof any special rights whatsoever. 11. BENEFITS EXTENDED TO DIRECTORS AND INDEPENDENT EXPERTS No benefits of any type shall be extended to the directors of any of theentities participating in the merger, or to the independent expert whoparticipates in the merger process. 12. TAX REGULATIONS The planned merger shall be governed by the tax regulations set forth in ChapterVIII of Title VII, and by the second supplemental provision of the ConsolidatedText of the Corporate Income Tax Act, as approved by Royal Legislative Decreeno. 4/2004. For this purpose, and pursuant to the provisions of Section 96 of theabovementioned Consolidated Text, the merger transaction will be reported to theDepartment of Economy and Finance in the manner established by the regulations. 13. BY-LAWS AMENDENTS TELEFONICA's Board of Directors shall submit for the approval of theshareholders at the General Shareholders' Meeting of TELEFONICA wherein themerger is approved, the appropriate by-laws amendments pursuant to this MergerPlan. 14. APPOINTMENT OF INDEPENDENT EXPERT Pursuant to the provisions of Section 236 of the Corporations Act, the directorsof TELEFONICA and TELEFONICA MOVILES shall ask the Commercial Registryof Madrid to appoint a single independent expert for the preparation of a singlereport on this Merger Plan and on the assets contributed by TELEFONICAMOVILES to TELEFONICA as a result of the merger. 15. ADMINISTRATIVE AUTHORIZATIONS The effectiveness of the planned merger shall be subject to the provision ofnotices and to the acquisition of the applicable relevant authorizations andregistrations in Spain and in the other jurisdictions in which both companiesare present. Pursuant to the provisions of Section 234 of the Corporations Act, the directorsof TELEFONICA and TELEFONICA MOVILES whose names appear below havesigned and, through their signature, authenticated, this Merger Plan, in theform of three (3) original specimens, of identical form and content, which havebeen approved by the Boards of Directors of TELEFONICA and of TELEFONICAMOVILES on March 29, 2006. BOARD OF DIRECTORS OF TELEFONICA, S.A. _/s/ Cesar Alierta Izuel /s/Isidro Faine CasasMr. Cesar Alierta Izuel Mr. Isidro Faine Casas /s/ Gregorio Villalabeitia Galarraga /s/ David ArculusMr. Gregorio Villalabeitia Galarraga Mr. David Arculus /s/ Carlos Colomer Casellas /s/ Alfonso Ferrari HerreroMr. Carlos Colomer Casellas Mr. Alfonso Ferrari Herrero /s/ Gonzalo Hinojosa Fernandez de Angulo /s/ Julio Linares LopezMr. Gonzalo Hinojosa Fernandez de Angulo Mr. Julio Linares Lopez /s/ Vitalino Manuel Nafria Aznar /s/ Enrique Used AznarMr. Vitalino Manuel Nafria Aznar Mr. Enrique Used Aznar /s/ Mario E. VazquezMr. Mario E. Vazquez It is noted for the record that the Directors Messrs. Jose Fernando de AlmansaMoreno-Barreda, Maximino Carpio Garcia, Luis Lada Diaz, Antonio MassanellLavilla and Antonio Viana-Baptista have abstained from participating in thedeliberations and voting on the Merger Plan because they believe that they aresubject to a potential conflict of interest. For this reason their signatures donot appear in this document. In addition, it is noted for the record that the Directors Messrs. Pablo IslaAlvarez de Tejera and Peter Erskine did not physically attend the meeting atwhich this Merger Plan was approved. Mr. Pablo Isla Alvarez de Tejera wasrepresented by Cesar Alierta Izuel and Mr. Peter Erskine attended the meetingthrough video-conference. For this reason, their signatures also do not appearin this document. BOARD OF DIRECTORS OF TELEFONICA MOVILES, S.A. (He does not sign due to conflict of interest) __________________________ D. Enrique Corominas Vila /s/ Antonio Viana- BaptistaD. Antonio Viana-Baptista (He does not sign due to conflict of interest)__________________________D. Luis Lada Diaz /s/ Jose Maria Mas Millet D. Jose Maria Mas Millet (He does not sign due to conflict of interest)_______________________________ /s/ Lars M. BergD. Jose Maria Alvarez-Pallete Lopez D. Lars M. Berg/s/ Miguel Canalejo LarrainzarD. Miguel Canalejo Larrainzar (He does not sign due to conflict of interest) __________________________ D. Maximino Carpio Garcia (He does not sign due to conflict of interest) (He does not sign due to conflict of interest)__________________________ __________________________D. Victor Goyenechea Fuentes D. Antonio Massanell Lavilla /s/ Javier Echenique Landiribar /s/ Alfonso Merry del Val GracieD. Javier Echenique Landiribar D. Alfonso Merry del Val Gracie (He does not sign due to conflict of interest) (He does not sign due to conflict of interest)__________________________ __________________________________D. Alejandro Burillo Azcarraga D. Fernando de Almansa Moreno-Barreda It is noted for the record that the proprietary Directors appointed at therequest of Telefonica, S.A., i.e. Messrs. Corominas Vila, Lada Diaz,Alvarez-Pallete Lopez, Carpio Garcia, Goyenechea Fuentes, Massanell Lavilla,Burillo Azcarraga and Almansa Moreno-Barreda have abstained from participatingin the deliberations and voting on the merger plan, and consequently have notsigned it, because they believe that they are subject to a potential conflict ofinterest. For this reason the signatures of Messrs. Corominas Vila, Lada Diaz,Alvarez-Pallete Lopez, Carpio Garcia, Goyenechea Fuentes, Massanell Lavilla,Burillo Azcarraga and Almansa Moreno-Barreda do not appear in this document. In addition, it is noted for the record that Mr. Viana-Baptista, executiveDirector of Telefonica Moviles, S.A., has adhered to the unanimous decision ofthe independent Directors of Telefonica Moviles, S.A. and, consequently, hassigned the present Merger Plan. ANNEX 2 Nota de Prensa Press Release 29/03/06 THE BOARDS OF DIRECTORS OF TELEFONICA AND TELEFONICA MOVILES APPROVETHE MERGER PLAN Telefonica Moviles has accepted the proposed exchange ratio of 4 shares ofTelefonica for every 5 shares of Telefonica Moviles. Prior to completion of the merger, Telefonica Moviles will also pay to itsshareholders two special cash dividends for a total amount of 0.435 Euro perTelefonica Moviles share, in addition to the annual dividend of 0.205 Euroalready proposed. The total amount of these three dividends (0,64 euros pershare) will be paid on the 21st of July, before the exchange of the shares. The merger with Telefonica Moviles will improve Telefonica's flexibility toaddress future customer needs and facilitate further interaction betweenbusiness lines. Madrid, March 29th 2006.- Following the proposal made on March 17th, 2006 byTelefonica to Telefonica Moviles to begin negotiations aimed at achieving apossible merger of both Companies, the Boards of Directors of Telefonica andTelefonica Moviles each met today and decided to approve the merger plan. The merger plan sets that the exchange ratio will be 4 shares of Telefonica of 1Euro nominal value each for every 5 shares of Telefonica Moviles of 0.5 Euronominal value each. The transaction is intended to be executed with treasurystock of Telefonica complemented by a capital increase. In addition, and prior to completion of the transaction, Telefonica Moviles willpay to its shareholders two special dividends for a total amount of 0.435 Euroin cash per Telefonica Moviles share. These additional payments are subject tothe merger approval by both the General Shareholders Meetings of TelefonicaMoviles and Telefonica. Telefonica Moviles will pay these special dividends inaddition to the ordinary dividend of 0.205 Euro. The record payment date for allthese dividends (0,64 Euro per share) will be on the 21st of July 2006, beforethe exchange of the shares. Telefonica S.A. will also pay its annual dividend of 0.25 Euro on the 12th ofMay 2006. Furthermore, the Board of Directors of Telefonica, as announced last28th of February, has the intention to pay during the present fiscal year anadditional dividend of 0.25 Euro per share aimed to present Telefonica'sshareholders and to Telefonica Moviles's shareholders who became Telefonica's asa result of the merger. The transaction is another important step in Telefonica's strategic evolution.The merger will improve Telefonica's current positioning and enhance its abilityto extract maximum value from its unique business platform, allow it to exploitbetter the growth from providing innovative information, communication andentertainment services to its customers and provide a more flexible Groupstructure from which to address future customer needs for converged services andother developments. During the past five years, the telecom industry has rapidly evolved. New demanddrivers have emerged, with mobile becoming a daily need for people, increasinglysubstituting the use of traditional fixed line services, and broadband accessmore and more commonplace for all customers. Additional technology advances arecreating new opportunities oriented towards the development of all-IP networksthat allow efficient mobile and fixed broadband access in support of thisenhanced connectivity and new value-added services. At the same time, marketdynamics are becoming more challenging with fewer, larger players takingadvantage of scale benefits and focused on the provision of combined offerings,but also as new niche players enter different growth sectors as regulation andtechnology evolves. This new context presents attractive growth opportunities to those companiesable to anticipate and rapidly adapt to industry changes and customer needs.Telefonica has demonstrated a strong operating and financial track record in theface of these challenges in the past. The merger with Telefonica Moviles willenhance its potential to reach these objectives in the future and it will alsoimprove Telefonica's capacity to respond to the needs of all its clients, addingvalue to Telefonica and Telefonica Moviles shareholders. Key dates in the merger process are as follows: • Mid-Late May - Merger documentation will be made available • Mid-Late June - Shareholder vote at AGM's of Telefonica and Telefonica Moviles • July 21st 2006 - Record date for Telefonica Moviles ordinary (0,205 euros per share) and special (0,435 euros per share) dividends • Early August - Closing Para mas informacion / For further information Tel: +34 91 584 09 20Direccion de Comunicacion Corporativa Tel: +34 91 584 09 20 Fax: +34 91 532 71 18 e-mail: [email protected] Office Fax: +34 91 532 71 18 http://www.telefonica.es/saladeprensaGran Via, 28 - 3a Planta e-mail: [email protected] - MADRID This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
TDE.L