Telefonica looks to lift China Unicom holding--speculation rife on more deals

Telefonica has confirmed it wants to increase its shareholding in China Unicom from the current 8.37 per cent. The company has previously indicated it would like to boost its stake to around 10 per cent, but this was before the Chinese mobile telecoms market underwent a revamp 12 months ago.

However, Telefonica chairman, Cesar Alierta, has stated that this desire to increase its shareholding would be a gradual process "as we already know each other, trust each other, and that opens new possibilities."

But the door might be abruptly pushed open if China Unicom confirms reports its net profit may plunge more than 50 per cent for 2009 compared to 2008.

Last October, the two companies completed a US$1 billion purchase of each others shares, which resulted in China Unicom's holding around 0.88 per cent of Telefonica.

While this deal was seen as an attempt by the two firms to combat Vodafone's increasingly close collaborations with China Mobile, China Unicom's chairman Lu Yimin has admitted it was co-operating with Telefonica to investigate the potential of developing markets in Asia and Africa, "but so far, we haven't defined any specific objectives."

Separately, Telefonica has denied rumours that it is close to a merger with Telecom Italia despite speculation that the deal will be announced next month. Telefonica is said to have already discussed the possibility with bankers and has obtained financing for the deal.

If the deal was to receive the OK from the Italian government--which has a long history of stopping politically unpalatable deals--Telefonica would then have to deal with Brazilian antitrust officials because the merged firms would lead to Telefonica controlling the country's largest and third-largest mobile phone companies, as well as the fixed-line operator in Sao Paulo.

Given these issues, rumours that Telefonica was interesting in bidding for Kuwait-based multinational operator Zain have been discounted by most observers. Both companies have denied talks are underway, with Zain claiming it had not received any offers for its African operations, in the wake of the departure of its CEO Saad al Barrak.

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