852.75 National Telephone Co./3–245: Telegram

The Chargé in Spain (Butterworth) to the Secretary of State

455. During the course of negotiations developing from the two proposals reported in Embassy’s 388, February 22, 10 p.m., it became apparent that the Spanish Government is very anxious to have assurances from the ITT that it will enter into a service and technical contract with the CTNE. These conversations led to an agreement between Carceller and Caldwell along the following lines:

The Government will purchase all ITT shares at 2,000 pesetas per share to be paid (a) $98,752 in cash with surrender of shares; (b) $50,000,000 in 4% bonds to be completely amortized in 16 years. Minimum annual amortization will be $2,000,000 payable semiannually. If in any year 20% of the total dollar value of Spanish exports to the United States exceeds this minimum plus interest charges amortization will be increased by the sum of the difference. Furthermore, annual amortization will be increased by (1) the application of 75% of the dollar value of exports of Standard Eléctrica to ITT New York, and its subsidiaries and (2) at the option of the ITT by the return to the Spanish Government of bonds equivalent to 75% of exports of Standard Eléctrica to subsidiaries of the ITT in countries other than the United States (3) $6,700,00 in 4% Government notes due December 1, 1945.
The Government will authorize the transfer of dollars $15,263,000 against ITT/CTNE credits as soon as the Government and ITT lawyers reach an agreement on the exact phraseology of the sales contract. (Carceller assured Caldwell this payment would be made before March 15, 1945.)
The balance of $11,000,000 of these credits will be covered by two notes without interest, one of $6,000,000 due July 1, 1945 and one of $5,000,000 due September 1, 1945.
Contract for sale of shares and notes and bonds issued in payment thereof will be exempt from taxes.
During the month of March the Government will authorize an increase in the capital of Standard Eléctrica Madrid of 5,000,000 pesetas in ordinary shares and 2,000,000 pesetas in preferred shares with full preemptive rights to International Standard Eléctrica Corp.
After above capital increase has been carried out and the Standard surplus account has been liquidated the ISEC will sell to the CTNE 17% of the ordinary shares of Standard at par.
At the request of the Government the ITT will allow up to 3 of its representatives to remain on the board of directors of CTNE without compensation other than their fees as board members during the period of reorganization but not to exceed 3 months. These representatives of the ITT will act as special advisors to the Government appointee as president of the CTNE during this transition period.
The ITT gives an oral undertaking to the Minister expressing its willingness, once assured the Spanish national telephone service would be operated under a private company with satisfactory distribution of shares board of directors concession contract, et cetera, that the ITT would enter into a service and technical contract with the CTNE and repurchase 38,000 shares by the surrender of the $6,700,000 4% Government notes due December 1, 1945 plus the necessary additional cash to make the price correspond to that paid by the Government to the ITT. This service contract would be based on 1½ of gross revenue for a minimum period of 5 years continuing thereafter from year to year until cancelled on one year’s advance notice by either party.

Subsequently Carceller informed Caldwell that General Franco has approved the above and that it is probable Cabinet approval will be given within the next few days.