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To: md1derful who wrote (21166)	7/26/2000 1:55:57 PM
From: Art Baeckel	Read Replies (1) \| Respond to of 22640

UPDATE 2-Resignation of Telefonica chief imminent-source Reuters Company News - July 26, 2000 12:29 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 start of meeting para 2, closing share price 9, fund manager 17-18) By William Schomberg MADRID, July 26 (Reuters) - The resignation of Telefonica's embattled chief Juan Villalonga was imminent on Wednesday, with Cesar Alierta, chairman of tobacco giant Altadis , due to replace him, an industry source said. Telefonica's board began a meeting shortly after 1500 GMT which was expected to appoint Alierta to replace Villalonga, who has transformed the group from a former state telecoms monopoly into an aggressive multinational. 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. His position at Telefonica -- Europe's fourth biggest telecoms company -- has looked increasingly tenuous since last year as relations soured with Spanish Prime Minister Jose Maria Aznar, a former school friend. The government in recent weeks had backed Telefonica's leading shareholders, Banco Bilbao Vizcaya Argentaria and savings bank La Caixa, in pressuring for Villalonga's ouster, market and corporate sources said. Villalonga stood to leave with severance pay estimated at around $25 million, newspapers reported. "Until it is made official at the board...there is room for surprise, but right now it's 99.99 percent likely that Alierta will substitute Villalonga," said the source, who has been close to the negotiations for the widely expected resignation. Telefonica and Altadis officials declined to comment. Telefonica shares ended up 0.8 percent at 23.74 euros, outperforming the main Ibex index but off earlier gains of about 2.5 percent as a weak opening on the Nasdaq took its toll on European telecoms stocks. Telefonica's shares were still way below an all-time high of 32 euros touched in March, but investors said the signs that the long-running Villalonga saga was nearly over was a relief. "Given the situation, the news of Villalonga's imminent resignation and Alierta's appointment can only be good because all the uncertainty of the last few weeks is disappearing," said a telecoms analyst in Madrid. Shares in Telefonica's Internet arm Terra Networks ended up 0.5 percent having jumped more than five percent earlier. Its proposed merger partner, U.S. search engine Lycos Inc. , closed up nearly $3 at just under $60 in New York on Tuesday. Villalonga in May forged a $12.5 billion takeover by Terra of Lycos Inc. , but many investors say the price was too high and both stocks have sagged since then. Some analysts have suggested the deal could be affected by Villalonga's departure. Lycos and Telefonica officials say the deal stands firm. ALIERTA SEEN AS CONSENSUS CANDIDATE Newspapers said Alierta would be flanked by one or more senior executives to run the day-to-day business. The favourite for the post of chief executive was former Telefonica executive Fernando Abril-Martorell. Head of Telefonica Moviles, Luis Lada, could also be named to an executive position, some reports said. Michael Seyda, who has 100,000 Telefonica shares in his Iberia fund with Dresdner Bank's Deutsche Investment Trust said Villalonga had lost the confidence of the markets. "Villalonga resigning is good for Telefonica. If Abril took over responsibility, I don't think the stock will lose any of its attraction for investors," Seyda said from Frankfurt. Unlike Villalonga, whose title was executive chairman, Alierta is likely to be named just chairman, sources said. Alierta, like Villalonga, is a former investment banker. He founded brokerage Beta Capital before being nominated by the Spanish government to run tobacco company Tabacalera in 1996. He helped negotiate a merger with France's Seita late last year to create Altadis. But shares in the new company have since fallen, raising questions about his management skills. Alierta was one of two Telefonica board members of more than three years, the minimum period needed to become chairman under Telefonica's bylaws, avoiding a potentially complicated and time-consuming search for an outside candidate. VILLALONGA'S GLITTERING SPANISH CAREER The departure of Villalonga, 47, would close a chapter in the career of one of Europe's most flamboyant businessmen. Villalonga bought a string of phone companies in Latin America in the 1990s to turn Telefonica into the region's leading telecoms company. But trouble began brewing last year when details emerged of a huge Telefonica stock options plan, embarrassing his old friend Aznar ahead of March's general election. The prime minister was also believed to be upset by Villalonga's decision to leave his wife, a friend of the Aznars, and set up a new home with a former 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 BBVA and La Caixa for a proposed merger of Telefonica with KPN Telecom of the Netherlands. In June, newspaper El Mundo accused him of using privileged information in a 1998 options trade. Telefonica denied any wrongdoing by Villalonga. The results of an investigation by securities regulators is expected soon.