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UPDATE:Telefonica Gains Ground in China on Unicom Stake

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MADRID (Dow Jones) Telefonica said Thursday it will invest some EUR800 million to build its ownership in China Netcom Group Corp. (Hong Kong) Ltd. and China Unicom, gaining a greater foothold in the world's largest mobile market. Telefonica said in a filing with Spanish regulators Thursday that it plans to own 5.5% of the new, merged company following the restructuring of China's state controlled telecommunications industry.

The transaction will position the Spanish giant as the leading private shareholder of the new company after expanding aggressively in Latin America and Europe.

Earlier this week, Jose Maria Alvarez-Pallete, Telefonica's head of Latin America and China Netcom director, said the company is aiming to become China Unicom's strategic partner, offering telecommunications and international know-how.

Telefonica, Spain's largest telecommunications company by market value and clients, currently owns about 5% of the China Netcom company and is soon expected to get clearance for the ownership of another 2.2%.

China Unicom is due to acquire China Netcom in an all-share transaction.

Under terms of the deal agreed upon with New York-based asset management firm AllianceBernstein LP, Telefonica will acquire up to 5.74% of China Netcom Group in two tranches.

In the first tranche, Telefonica will acquire 2.71% of China Netcom for about EUR368 million. It will then buy China Unicom shares after the two companies merge, representing 3.03% of China Netcom, for a price that is expected to range from EUR392 million to EUR434 million.

At 1323 GMT, Telefonica shares were down EUR0.01 at EUR17.31, while Spain's key IBEX-35 index was 0.9% lower. At current values, Telefonica has a market capitalization of EUR81.63 billion.

-By Santiago Perez, Dow Jones Newswires; 34 91 395 8119; santiago.perez@dowjones.com

(END) Dow Jones Newswires

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