Cesar Alierta takes over as Telefonica boss

He will be replaced by Cesar Alierta, chairman of the French-Spanish tobacco group Altadis.

Investors and critics of Mr Villalonga had called for him to resign ever since he was accused of using insider information in a 1998 share trade.

He allegedly traded in stock options two months before announcing a Telefonica alliance with US giants MCI and Worldcom - a deal that later quietly fell apart.

The company and Mr Villalonga deny any wrongdoing.

Transforming corporate Spain

The former Telefonica boss has been credited with transforming Spain's corporate scene.

Juan Villalonga's brash management changed Spain's corporate landscape

Through a string of mergers and acquisitions, he transformed the former state monopoly into a powerful international predator of the telecoms world.

Once an investment banker and partner at consulting firm McKinsey, under his reign the company's market valued increased five-fold.

But in recent months, shareholders became increasingly uncomfortable with Mr Villalonga's management style.

He was reported to do deals without consulting Telefonica's board.

There were also complaints that he was responsible for souring relations with the Spanish government.

Falling out

Mr Villalonga was once a close friend of Spain's Prime Minister Jose Maria Aznar.

But a plan to award himself and fellow managers huge stock option packages caused political embarrassment to Mr Aznar in the run-up to general elections.

Mr Villalonga's decision to leave his wife - a close friend of Mr Aznar's wife - for a Mexican beauty queen, did not improve his standing either.

Golden handshake

Living in Miami, Mr Villalonga should now be able to enjoy the benefits of a golden handshake, reportedly worth up to $25m.

Telefonica, meanwhile, is expected to pull through with the deals struck by its former chairman.

However, Spanish analysts and political commentators agree that the company will now slow down its pace and consolidate its possessions.