Telefonica’s Beleaguered Chief Quits

Besieged Telefonica Chairman Juan Villalonga stepped down Wednesday as head of the Spanish company he transformed from a sleepy state telephone monopoly into a multinational powerhouse.

Telefonica’s board named Cesar Alierta, chairman of French-Spanish tobacco group Altadis, to replace Villalonga, who is facing an investigation for alleged insider trading, the telecom giant said.

“The appropriate time has come for a change in the company’s leadership,” Telefonica said.

Villalonga’s departure comes two months after the Spanish government and Telefonica’s leading shareholders scuttled a proposed merger with KPN Telecom of the Netherlands.

Villalonga, whose flashy lifestyle, swashbuckling management approach and penchant for big deals has made him a symbol of Spain’s economic boom, told union leaders he was resigning because of heavy pressure from the government.

His position at Telefonica--Europe’s fourth-largest telecom company--had looked increasingly shaky since last year, when relations soured with Prime Minister Jose Maria Aznar, the former schoolmate who appointed him in 1996.

Villalonga leaves Telefonica with a “golden handshake,” a severance package estimated at $25 million, newspapers reported.

Telefonica’s American depositary receipts rose $1.88 to close at $67.31 on the New York Stock Exchange.

Analysts believe Alierta will stick with major deals engineered by Villalonga, including the planned spinoff of Telefonica’s mobile and media units and the $12.5-billion merger of its Terra Networks Internet unit and U.S. search engine Lycos.

Telefonica’s board Wednesday reaffirmed its commitment “to carry out all strategic deals that are pending,” an apparent response to investor concerns that Villalonga’s departure might cause the Lycos merger to fall through.

But Alierta is expected to slow the rapid pace of expansion that marked Villalonga’s tenure.