Telefonica Climbs After Report on AT&T Approach

Telefonica SA, Spain’s biggest phone company, rose the most in three months in Madrid trading after newspaper El Mundo reported that AT&T Inc. made a takeover approach that was rejected by the country’s government.

Telefonica shares rose as much as 3.9 percent to 10.42 euros, the most since March 14. The stock gained 2.6 percent at 11:06 a.m. in Madrid, valuing the company at 46.9 billion euros ($62.6 billion). It was the biggest gainer on the benchmark IBEX 35 index today.

Spain’s government blocked the bid because it considers Telefonica to be strategic to Spain’s economy, El Mundo reported, citing unidentified sources. AT&T bid 70 billion euros for Madrid-based Telefonica and offered to take on more than 52 billion euros of debt, the newspaper said. AT&T backed down after the government’s rejection, El Mundo said.

“A potential takeover by AT&T wouldn’t be totally crazy as the company showed an interest in Europe and it holds a comfortable financial position and it is trading with a large premium versus European telecommunications companies,” Andres Bolumburu, an analyst at Banco de Sabadell SA in Madrid, said by phone. “However, the deal would just be very unlikely because the government can’t afford to lose such an emblematic and strategic asset.”

Telefonica didn’t receive an approach or any written or verbal indication of interest by AT&T, Marisa Navas, a Telefonica spokeswoman, said in a phone interview today.

Emerging Markets

Spain’s Industry Minister Jose Manuel Soria said he met with AT&T’s chairman at the Mobile World Congress in Barcelona in February, and that he didn’t mention any particular interest in the Spanish phone company.

“He told me he had an interest in Europe, but he didn’t say a single word to me on any interest in a bid for Telefonica,” Soria said in interview with a state-owned television channel today.

Credit-default swaps insuring Telefonica’s debt for five years fell as much as 3.1 percent to 218.4 basis points, signaling an improvement in creditworthiness. The derivatives pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

Telefonica’s 750 million-euro 2.736 percent bonds rose 0.2 cents on the euro to 97.6 cents at 10:10 a.m. in Spain.

If reports of AT&T’s approach for Telefonica are true, it implies AT&T is more interested in emerging-markets exposure, rather than just cheap valuations, Robin Bienenstock, an analyst at Sanford C. Bernstein, said today in a report today. Besides Spain, Telefonica operates in Latin American markets including Brazil, Colombia and Chile.

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