stake acquisition in PCCW

13th Nov 2006 08:35

Telefonica SA13 November 2006 As provided in article 82 of the Spanish Stock Market Act (Ley del Mercado deValores), TELEFONICA, S.A. (TELEFONICA) hereby reports the following SIGNIFICANT EVENT On November 12th, 2006, TELEFONICA reached an agreement to acquire throughits wholly-owned subsidiary TELEFONICA INTERNACIONAL, S.A.U. or any of itsaffiliates, an 8% stake in PCCW Limited ("PCCW"), the Hong Kongtelecommunications operator, from Fiorlatte Limited ("Fiorlatte"), a company100% owned by Mr. Francis P.T. Leung. Mr. Francis P.T. Leung agreed on July 9th2006 to acquire a 22.65% stake in PCCW from Pacific Century RegionalDevelopments Limited ("PCRD"). On completion of such transaction, TELEFONICAwill acquire the aforementioned 8% of the PCCW shares. Completion is expected onor before the first half of January 2007. TELEFONICA and China Network Communications Group Corporation ("CNC"), whichcurrently owns approximately 19.94% of the issued share capital of PCCW, haveentered into an agreement whereby, once TELEFONICA has acquired the 8% ofPCCW, TELEFONICA and CNC would transfer their respective interests in PCCWinto a special purpose vehicle ("SPV") which will hold a combined 27.94% stakein PCCW, becoming the largest individual shareholder of PCCW. The acquisition is subject to, amongst other things, the approval of the sale toFiorlatte of 22.65% of PCCW by minority shareholders of PCRD at a Shareholders'Meeting of PCRD which is expected to be held by the end of November 2006. Theacquisition of the PCCW stake represents an investment of approximately 323million euros by TELEFONICA. However, TELEFONICA may receive a 10%discount depending on the performance of PCCW's share price for a certain periodwithin 10 months after completion. TELEFONICA has the right, in certain circumstances, to swap its shares inPCCW for shares in China Netcom Group Corporation (Hong Kong) Limited ("CNC (HK)"), based on current market prices, consistent with previous announcements of TELEFONICA to increase its shareholding in CNC(HK) up to 9.9%. In addition, TELEFONICA, CNC and PCCW have signed a MOU to develop astrategic alliance in relation to certain areas of business in thetelecommunications and media sectors, including, amongst others, IPTV andinternational wholesale services. Furthermore, CNC (HK) and TELEFONICA have entered into a SupplementalAgreement, in relation to the Strategic Alliance Agreement dated 14 November2005, which entitles TELEFONICA to nominate two representatives as directorsof CNC (HK) with its current participation of 5%. Therefore, TELEFONICA hasthe right and intends to nominate one new representative as a director of CNC(HK) in addition to its current representative on CNC (HK)'s board. This information is provided by RNS The company news service from the London Stock Exchange

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