At an extraordinary meeting on Saturday, Telefónica's board of directors decided to replace the executive chairman, José María Álvarez-Pallete, with Marc Murtra, chairman of defense company Indra, at the request of Spain's state-owned industrial holding company Sociedad Estatal de Participaciones Industriales (SEPI), which owns a 10% stake in Telefónica.
"Bringing in an executive with limited telecom experience and what appears to be a political appointment without undertaking a broader market search is not necessarily in the best interest of the company on the face of it," wrote analyst James Ratzer of NewStreet Research in a note to investors.
Murtra, who until now headed Indra, which is 28% owned by the state, held a government position between 2008 and 2011.
Borja Sémper, deputy and spokesman for the conservative Popular Party in the opposition, criticized the measure as "an assault" on the company.
Telefónica and the government declined to comment.
Álvarez-Pallete's term was due to be renewed this year at the annual general shareholders' meeting, which is usually held in April or May. He had been at the helm of the company since 2016.
The government of the Socialist president, Pedro Sánchez, ordered the purchase of a 10% stake worth about 2.3 billion euros ($2.4 billion) in Telefónica through SEPI last May to counter the acquisition of a similar stake by Saudi Arabia's STC at the end of 2023.
The acquisition gave the State a seat in Telefónica's board, while STC has not yet obtained a presence in the board. The government did not approve STC's stake until November, after lengthy deliberation, as Telefónica is considered a defense services provider and a strategic company.
In recent years, Telefónica, like its competitors in Europe, has faced a cut in profitability due to fierce competition and the need for heavy investment in infrastructure for next-generation 5G mobile technology.
Despite the tough telecom environment, Álvarez-Pallete had set a target to increase cash flow to €5 billion in 2026 from €3 billion in 2023, focusing on fiber networks and digital services, and promised dividends above 2023 levels.
($1 = €0.9690)
(Reporting by Inti Landauro and Jesús Aguado; editing by Andrei Khalip and Mark Potter; edited in Spanish by Benjamín Mejías Valencia)
