possible merger TEF-TEM
Telefonica SA
23 March 2006
COMUNICATION OF RELEVANT FACT
Telefonica, S.A., in compliance with the provisions in Article 82 of Securities
Market Law 24/1988 and companion provisions, hereby reports that on March 17,
its subsidiary Telefonica Moviles ('TEM') received a letter setting forth a
proposed merger by Telefonica, S.A. ('TEF') in the terms revealed by TEF on the
previous day by way of a Relevant Fact.
Notice is hereby given in this respect that the Delegate Committee (Comision
Delegada) of TEM, adopted, among others, the following resolutions:
(i) To commence a period of strategic, financial and legal analysis of the
proposed transaction from the standpoint of the corporate interests of TEM and,
as the case may be, for negotiation of the economic and legal terms of the
merger.
(ii) To place on record that the nominee directors at the Company, namely, Mr.
Corominas Vila, Mr. Lada Diaz, Mr. Alvarez-Pallete Lopez, Mr. Carpio Garcia, Mr.
Goyenechea Fuentes, Mr. Massanell Lavilla, Mr. Burillo Azcarraga and Mr. Almansa
Moreno-Barreda, have a conflict of interest regarding the merger transaction
mentioned above and, therefore, they shall not take part in any analysis and
decision-making related to the above-mentioned transaction, either by the Board
of Directors or the Delegate Committee. Mr. Viana Baptista, for his part, as the
Company's chief executive, has stated his decision to support and actively
cooperate with the independent Directors in their work and discussions even
though, in order to avoid any type of potential conflict of interest, or merely
the appearance of such, he will not to take part in the vote on the proposed
merger, without prejudice to his potentially adhering to the decisions adopted
by the independent directors on the merger.
(iii)To set up an ad hoc committee (the 'Merger Committee'), that will be
fostered and supported by Mr. Viana-Baptista, composed exclusively of TEM
independent directors, responsible for managing and leading the analysis and
negotiation work, the discussions on the proposed merger transaction, and for
submitting to the Audit and Control Committee (Comision de Auditoria y Control),
to the Delegate Committee or to the Board of Directors, as appropriate, the
proposed decisions that it deems necessary or desirable.
(iv) To call a meeting of the Board of Directors for March 29, 2006 in order for
it, with the sole intervention of the independent directors and the adherence,
should it be the case, of Mr. Viana Baptista, to discuss and adopt the decisions
it deems fit regarding the merger, without prejudice to the previous work
carried out and meetings held in this respect.
It is hereby placed on record that the foregoing resolutions were adopted with
the affirmative vote of all of the independent directors who are members of the
Delegate Committee, namely, Mr. Mas Millet, Mr. Canalejo Larrainzar, Mr. Merry
del Val Gracie and Mr. Echenique Landiribar, and that Mr. Viana Baptista adhered
to the decision of the independent directors, although Mr. Corominas Vila, Mr.
Alvarez Pallete, Mr. Almansa Moreno-Barreda and Mr. Lada Diaz were absent from
the discussions and vote on the same, since, as mentioned above, they have a
conflict of interest arising from the fact that they are nominee directors
appointed at the request of TEF.
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