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To: Art Baeckel who wrote (21162)	7/26/2000 7:35:03 AM
From: Art Baeckel	Read Replies (1) \| Respond to of 22640

UPDATE 3-Telefonica's Villalonga falls, tobacco boss in-source Reuters Company News - July 25, 2000 17:22 Copyright 2000 Reuters Limited. All rights reserved. Republication or redistribution of Reuters content is expressly prohibited without the prior written consent of Reuters. Reuters shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. (adds details) By William Schomberg MADRID, July 25 (Reuters) - The embattled head of Spanish telecoms giant Telefonica Juan Villalonga has agreed to resign and will be replaced by the chairman of Spanish-French tobacco group Altadis , an industry source said on Tuesday. Cesar Alierta would be confirmed as the new chairman of Spain's biggest company at a board meeting on Wednesday. "Until it is made official at the board tomorrow there is room for surprise, but right now it's 99.99 percent likely that Alierta will substitute Villalonga," said the source who is close to the negotiations over the widely expected resignation. Telefonica and Altadis spokesmen declined to comment. The replacement of Villalonga by Alierta was reported by several Spanish media on Tuesday evening. Villalonga -- Spain's best known businessman with a passion for brokering huge deals -- is under investigation for alleged insider trading, claims that Telefonica has firmly denied. The former investment banker has transformed Telefonica over four years from a former state monopoly into an aggressive multinational which ranks among Europe's biggest telecoms operators and which has huge investments in Latin America. He also recently forged a proposed $12.5-billion takeover by Telefonica's Internet arm Terra Networks of U.S. search engine Lycos Inc. , a deal which some analysts have said might be affected by Villalonga's widely expected departure. His position at Telefonica has looked increasingly tenuous since last year as relations with former schoolfriend and Spanish Prime Minister Jose Maria Aznar soured, and a rift opened up with leading shareholders. Telefonica shares in New York were down $1/04 at $65/07 shortly before 2200 GMT. Terra and Lycos shares were both up. ALIERTA COULD HAVE HANDS-ON HELP Newspapers Expansion and Cinco Dias said in their Website reports that Alierta would be backed by one or more chief executives to run Telefonica's business on a day-to-day basis. Front-runners were respected former Telefonica executive Fernando Abril-Martorell and Luis Lada, head of Telefonica's mobile arm in Spain, the reports said. Unlike Villalonga, whose full title was executive chairman, Alierta would be chairman, Expansion said, adding Villalonga stood receive around $25 million as a farewell payment. Alierta began his career with Spanish bank Banco Urquijo in 1970 where he ran capital markets operations and founded brokerage Beta Capital before being nominated by the Spanish government to run tobacco company Tabacalera in 1996. He forged a merger with France's Seita late last year to create Altadis. Shares in the new company have failed to take off and remain below their level at the time of the merger. Alierta was one of two Telefonica board members who have sat on the board for more than three years, the minimum period for nominees for chairman of the group under Telefonica's bylaws. Outside candidates would have required a change of the bylaws, a potentially lengthy process. The reports said Alierta was likely to be replaced at Altadis by Pablo Isla, secretary general at Spanish bank Banco Popular . VILLALONGA'S GLITTERING CAREER, NOW ON THE ROCKS The departure of Villalonga, 47, would end one of the most glittering careers in Spain, at least for now. Villalonga bought a string of phone companies in Latin America throughout the 1990s to turn Telefonica into the leading telecoms company in the 550-million strong Spanish and Portuguese world. He also led the way among European telecoms by expanding Telefonica beyond its traditional activity, adding on media, data and Internet units which he has also bolstered through rapid acquisitions. But trouble began brewing when details emerged of a huge Telefonica stock options plan late last year, drawing criticism from across Spain, including Catholic bishops and embarrassing Prime Minister Aznar ahead of March's general election. Aznar is also believed to be upset by Villalonga's decision to leave his wife and set up a new home with a Mexican beauty queen in Miami. The couple had a baby girl in May. Villalonga's next crisis erupted in May when he failed to overcome opposition from the government and leading shareholders -- Banco Bilbao Vizcaya Argentaria and savings bank La Caixa -- for a proposed merger of Telefonica with KPN Telecom of the Netherlands. The resilient chairman seemed to have recovered from that crisis by pulling off the Terra-Lycos deal. But newspaper El Mundo in June accused him of using privileged information in an options trade two years earlier. That prompted an investigation by Spain's National Securities Market Commission. Although the results of the probe have yet to be announced, BBVA and La Caixa have been determined to get rid of Villalonga, sources have said. Telefonica said Villalonga bought a 264,000 options on Telefonica shares in January 1998, two months before Telefonica announced a strategic alliance with U.S. operators MCI and WorldCom , as reported by El Mundo. But the company denied that Villalonga was privy to inside information in the deal. The crisis has come at a sensitive time for Villalonga after the death of his mother earlier this week.