Juan Villalonga has officially resigned as chairman of Telefonica, ending a four-year run at the Spanish conglomerate he transformed into one of Europe's most dynamic players in the entertainment, communications and on-line realms.

"In the course of our conversations about the best way to create value for the entire company, we have agreed that now ... the time has come for a change in the chairmanship of Telefonica," said Villalonga in a statement issued immediately after Wednesday's board meeting.

As previously reported, Villalonga will be replaced by Cesar Alierta, the chairman of French-Spanish tobacco company Altadis, a cross-border company he forged through the merger last year of Tabacalera and Seita. Alierta began his career with the Spanish bank Banco Urquijo in 1970 before founding the Beta Capital brokerage firm.

Villalonga's departure has been the subject of fervid speculation ever since it emerged last month that the Spanish government had reopened an earlier investigation into allegations against him of inside trading. The probe looked into claims that in January 1998 Villalonga bought options on Telefonica shares while negotiating alliances with the US telephone giant now known as WorldCom. Villalonga has denied any irregularities, saying he bought the options a full two months before the WorldCom alliance was announced.

The 47-year-old Villalonga, who is described as a close friend of Spanish Prime Minister Jose Maria Aznar, is credited with Telefonica's immense growth over the last four years, transforming what was an old-style state monopoly into one of the most aggressive multinationals in Europe. Under him, Telefonica's market value has multiplied by a factor of six, thanks to expansion of the company's telecommunications and multimedia businesses, particularly overseas where he invested heavily and created affiliates across Europe, Latin America and more recently the US.

Just this Monday, the conglomerate's multimedia division Telefonica Media closed 4.79bn Euro acquisition of Endemol, after securing overwhelming shareholder support for the deal. Telefonica's Internet arm Terra Networks also made world headlines in May with its proposed buy out of the US internet portal Lycos for an estimated $12.5bn.

Despite the growth, Telefonica's shares have fallen steeply over recent months, due in part to the controversy and instability surrounding the company's chairman. Indeed, immediate stock market reaction to Villalonga's resignation was positive as Telefonica's shares rose nearly one per cent to finish at 23.74 Euro ($22.35) per share.

It appears that Telefonica may not have had much choice in picking Alierta as Villalonga's successor. The Zaragoza-born executive was one of just two Telefonica board members who have sat on the board for more than three years, the minimum requirement for a prospective chairman under company by-laws. Hiring a complete outsider would have meant changing those corporate articles, a lengthy process at a time when the markets were demanding a quick resolution.