Vodafone to sell 100% of Spanish business to Zegona

Vodafone agreed to sell 100% of its Spain-based operating company to U.K.-based telecom investment firm Zegona Communications for €5 billion (US $5.3 billion), offloading what has been a problematic operation for some time.

Margherita Della Valle, chief executive of Vodafone Group, said in a statement that the sale of Vodafone Spain “is a key step in right-sizing our portfolio for growth and will enable us to focus our resources in markets with sustainable structures and sufficient local scale.”

The sale had been expected after Zegona Communications recently confirmed it was in discussions with Vodafone on a potential acquisition of the Group’s Spanish business. Vodafone said it would receive at least €4.1 billion in cash. It will also provide €900 million in financing in the form of preference shares redeemable no later than six years after closing.

It is also the second major undertaking by Della Valle, who was named permanent CEO in April, to overhaul operations in mature European markets where there is little growth. In June, she announced the merger of Vodafone UK with Three UK under an agreement with the latter’s parent company CK Hutchison.

“My priority is to create value through growth and improved returns. Following the recently announced transaction in the U.K., Spain is the second of our larger markets in Europe where we are taking action to improve the Group’s competitiveness and growth prospects,” she added.

The aim is to complete the Spanish transaction in the first half of 2024 subject to shareholder approval and regulatory clearance. Zegona said it is targeting completion in Q1 2024 and will fund the acquisition through a combination of €4.2 billion in new debt, the Vodafone financing, and a new equity raise of up to €600 million. 

Zegona returns to Spain

Zegona, founded by two former Virgin Media UK executives, Eamonn O’Hare and Robert Samuelson, is by no means new to the Spanish market. The company acquired Spanish cable player Telecable in 2015, and then sold it to regional player Euskaltel in 2017. Euskaltel was subsequently acquired by Masmovil in 2021. 

In a statement, O’Hare, who is Zegona’s chairman and CEO, said the company is “very excited about the opportunity to return to the Spanish telecoms market.”

“This financially attractive acquisition marks our third deal in Spain after successful turnarounds at Telecable and Euskaltel. With our clearly defined strategy and proven track record, we are confident that we can create significant value for shareholders,” he commented. 

Zegona will be able to use the Vodafone brand in Spain for up to 10 years following the completion of the transaction. Vodafone Spain also sells services under the ho and Lowi brands. Zegona further indicated that it plans to appoint José Miguel García as CEO. He has previously served as CEO at both Euskaltel and Jazztel in Spain. 

Meanwhile, the Orange-Masmovil merger inches ahead

Vodafone Spain is the third-largest player in the Spanish market after Telefónica-owned Movistar and Orange Spain.

Orange signed a merger agreement with Masmovil in July 2022, with the aim of creating a 50:50 joint venture in Spain, although the transaction has yet to gain regulatory clearance from the European Commission.

During Orange’s Q3 2023 earnings call, CEO Christel Heydemann conceded that the EU regulatory process is taking longer than initially hoped, but indicated that negotiations on potential merger remedies remained ongoing.

She expressed hope that proceedings will be completed by the end of 2023, enabling the transaction to be closed in the first quarter of 2024.

Orange and Masmovil have reportedly chosen Digi Communications as the buyer of any assets that have to be offloaded to smooth the merger process.

It’s not clear what impact Zegona’s acquisition of Vodafone Spain will have on the proposed merger, although it has previously been speculated by the Spanish press that the Commission could put an end to the deal if Vodafone is acquired by Zegona and then sold off in pieces.