Vodafone Group Plc has announced an agreement to sell its Spanish business to Zegona Communications Plc, a London-based acquisition vehicle, in a deal valued at up to €5 billion ($5.3 billion), including debt. This strategic move reflects the evolving landscape of the telecommunications industry in Spain, where Vodafone has faced challenges and seeks to capitalize on new opportunities.
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To finance this significant transaction, Zegona has successfully raised debt of €4.2 billion and secured a committed revolving credit facility of €500 million. Additionally, Vodafone will provide up to €900 million in financing through an investment vehicle that will acquire new shares of Zegona, further cementing their commitment to the deal.
Zegona gambles on Vodafone's Spanish unit amid possibility of industry consolidation
The market reaction to this transaction has been mixed, with Vodafone shares declining by 1.1% to 75.9 pence at the time of the announcement. Some experts, such as Karen Egan from Enders Analysis, have characterized the deal’s valuation as potentially disappointing. Egan cites factors such as higher interest rates, the uncertain competitive and regulatory environment in Spain, and Vodafone’s eagerness to close the deal as contributors to this perception.
Vodafone’s move to divest its Spanish unit comes after the company’s acquisition of Spanish cable operator Ono in 2014 for €7.2 billion, leading to a reported €2 billion loss on that transaction alone. Zegona’s decision to acquire this unit indicates their belief in the potential for a turnaround and profitability in the Spanish market.
Zegona’s Chief Executive Officer, Eamonn O’Hare, stated in an interview that the company plans to raise between €300 million and €600 million in equity on the market to reduce its leverage to less than three times its earnings. This strategic shift aims to strengthen Zegona’s financial position and position the company for further success in the Spanish telecom market.
Notably, Zegona has previously played a pivotal role in reshaping the Spanish telecom landscape. Founded in 2015 by former Virgin Media executive Eamonn O’Hare, the company has previously bought and sold Spanish operator Euskaltel SA to Masmovil Ibercom SA, which reduced the market from five players to four. This acquisition significantly impacted the industry and paved the way for further consolidation.
However, the merger between Masmovil and France’s Orange SA is currently under examination by the European Commission. If approved, it would reduce the market to three major players, potentially opening the door to more telecom consolidation across Europe.
Zegona is embracing this uncertainty as an opportunity, indicating that if the Orange-Masmovil deal proceeds, Zegona-owned Vodafone could emerge as an alternative merger partner for Masmovil. Additionally, Zegona plans to explore wholesaling on Vodafone’s fixed network and consider network sharing or combining strategies to maximize infrastructure efficiency, a move that could enhance the industry’s competitiveness.
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