Telefonica and Unicom to swap $1 billion in shares

MADRID (Reuters) - Spain's Telefonica TEF.MC said on Sunday that it had reached a deal with China Unicom 0906.HK whereby each would buy $1 billion worth of each other's shares as part of a strategic alliance.

The logo of Spain's telecommunications giant Telefonica is seen at the company's headquarters February 28, 2008. REUTERS/Sergio Perez

The Spanish telecoms company said in a regulatory statement that its stake in Unicom would rise to about 8.06 percent, while Unicom would hold between 0.885 and 0.892 percent of Telefonica.

Under the terms of the deal, Telefonica will buy 693,912,264 new shares in China Unicom at HK$11.17 each.

China Unicom has agreed to buy 40,730,735 of Telefonica shares at 17.24 euros each. Telefonica closed on Friday at 17.38 euros, up 1.02 percent on the day.

Telefonica said each company would either pay for the new shares issued by the other in cash, or Telefonica would pay for new shares in Unicom with shares from its treasury stock.

The two companies have agreed not to issue, offer or sell a significant number of shares to any of their leading competitors, or to make significant investments in key rivals.

A Telefonica spokesman declined to comment on an unsourced report in Britain's Sunday Times that the Spanish giant and Vodafone VOD.L had offered to buy T-Mobile UK for some 3.5 billion pounds ($5.72 billion).

Telefonica owns British mobile operator O2.

T-Mobile UK is being touted for sale by German owner Deutsche Telekom DTEGn.DE, and The Sunday Times said the auction was in the late stages and a decision was likely to be made within weeks.

Vodafone declined to comment on the report and Deutsche Telekom was not immediately available.

($1=.6123 Pound)

Additional reporting by Rhys Jones in London; editing by Karen Foster