852.75 National Telephone Company/12–1644: Telegram

The Ambassador in Spain (Hayes) to the Secretary of State

4055. After Carceller had given full assurance to Caldwell and Ackerman yesterday that the Government delegates would inform CTNE at its meeting on December 19 that Labor Ministry decree of September 14[24] would not affect position of Americans in CTNE Caldwell made following proposals:

Immediate and complete liquidation of the ITT blocked credits of approximately 350,000,000 pesetas.
ITT to retain 20% interest in the CTNE common share capital or 80,000 shares of the existing 400,000.
Price for the common stock to be 2500 pesetas per share equivalent to $222.82 per share or a total of $53,239,973 for 238,941 shares.
(a) This sale price for the shares to be covered by negotiable dollar bonds maturing in 16 years with minimum annual amortization of $1,500,000; interest on unamortized portion of bond issue at 4% per annum payable in dollars semi-annually.
(b) When in any year the equivalent of 20% of the dollar value of exports from Spain to the United States exceeds the sum of minimum annual amortization of $1,500,000 plus the annual interest charge on the then unamortized bonds said annual amortization shall be increased by the amount of such excess.
(c) The total amortization as provided for in (b) above will be increased by 75% of the dollar value of all exports from the Spanish Standard Eléctrica factories.
(d) In addition to the above provisions for the liquidation of the sale value of the shares and interest, ITT will receive dollar transfers representing the equivalent of the dividends on its minority stock equity and for the fees agreed upon under the technical administration contract to be authorized by the Government between the ITT and the CTNE. (This contract to be at rate of 1½% of CNTE gross annual revenue.) The total volume in any one year of such dollar transfers to be not less than an amount equivalent to 5% of the dollar value of that year’s Spanish exports to the United States, any amount due and not transferred in any given year being cumulative.

Carceller stated that he accepted conditions above except 3 and 4 (d) and was confident Franco would confirm. Price may not exceed 20,000 pesetas per share. He insisted this offer is final and will not be increased by so much as one peseta. He agreed to 4 (d) except as regards transfer of dividend earnings which he wishes to examine [Page 443] further to ascertain the extent of commitment. He realized that recapitulation might be necessary if the price of 2,000 pesetas were established as the value of shares but he wished to scrutinize closely the plan of such revaluation before discussing the matter with Franco. Caldwell agreed to place before him a plan for recapitulation.

In a further conversation held today when Caldwell presented as formula for payment of arrears that $5,000,000 be paid on or before December 31st, $15,000,000 January 15 and balance [garble] $11,000,000 January 30, Carceller stated there had been some misunderstanding as his agreement to immediate transfer had been limited to the $15,000,000 or $20,000,000 mentioned previously. He assured Caldwell that $5,000,000 would be transferred to New York before year end, $15,000,000 by end of January; he insisted the balances should form part of the dollar bonds. Caldwell would not agree and when it became evident that an impasse had been reached he suggested this point be held over. Subject to further discussion of arrears payments Caldwell accepted share price of 2,000 pesetas on condition that price is net without deductions for taxes. Carceller would not agree to freedom from taxes ordinarily applying to such transactions but agreed to examine extent of taxes before making definite commitment. This was left pending.

Caldwell again made reservation on behalf of ITT that sale of shares is contingent upon approval by appropriate agencies of United States Government.

For Department’s information, Carceller seems genuinely desirous of reaching speedy agreement and has not been inclined to quibble over technicalities. By accepting the above proposals he considers Spanish Government is being very generous. Accepting with reservation Caldwell’s statement that ITT invested $45,000,000 in its properties he pointed out that under above scheme it would recover in cash about $30,000,000, in negotiable guaranteed government bonds $43,000,000, that it had previously transferred $11,000,000 and still retains a share interest valued at approximately $15,000,000. He wishes sufficient ITT control to ensure continuing efficiency of company and is willing to pay a fair sum for that service. He fears that in reorganization of capital structure either banks, ITT, or both, may seek to obtain benefits which could lead to criticism of Government and apparently intends to study carefully ITT’s proposals.

Caldwell has thus far handled negotiations very ably for his principals; although there remain for settlement such questions as tariffs, government debts to CTNE, et cetera these become less important to American interests as a consequence of sale of its majority shares.

It should be noted that the Embassy has played no part in the framing of the I.T. and T. proposals nor has it assumed any responsibility [Page 444] in that connection. It has confined its intervention to creating the atmosphere and bringing about the conditions to the end that the representative of the I.T. and T. in Spain could negotiate with an authorized representative of the Spanish Government with more than reasonable chance of success.