By Inti Landauro and Andres Gonzalez

MADRID (Reuters) – State-owned investment fund SEPI is proposing to replace Telefonica (NYSE: ) Chief Executive Jose Maria Alvarez-Pallete, who has led the company since 2016, a source familiar with the matter said. in the matter told Reuters on Saturday.

The candidate to replace Alvarez-Pallete is Marc Murtra, currently executive chairman of the defense company Indra, whose largest shareholder is SEPI, the source said.

The change will be decided at a board meeting to be held sooner rather than later, another source with knowledge of the matter told Reuters. The shareholders must approve any decision of the board in a general assembly.

Both sources confirmed an earlier report by news website El Confidencial.

Alvarez-Pallete’s current term is up for renewal this year at the annual general shareholders assembly.

Under Murtra, Indra, which is 28% owned by the Spanish government, is targeting the defense and aerospace business to benefit from the increase in military budgets in European countries following the rise in global tensions.

Telefonica declined to comment and no one at Indra was immediately available for comment.

The Spanish government bought a 10% stake worth about 2.3 billion euros ($2.36 billion) in Telefonica through SEPI in May 2024 to offset the acquisition of the same stake by Saudi Arabia’s STC in late 2023 .

On May 8, after reaching a 7% stake in the company, the government asked for a seat on the board of Telefonica and proposed Carlos Ocana, former cabinet chief of the industry ministry, to represent the government’s interests.

In recent years, Telefonica, like its European rivals, has faced a pressure on profits from fierce competition and the need for heavy investment in infrastructure for the 5G series. next generation mobile technology.

It is selling stakes in more mature businesses such as submarine cables or mobile masts and smaller operations in Latin America to fund 5G and optic fiber.

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