- Zegona Communications was started by two former Virgin Media executives
- The acquisition will be partly funded through a €4.2bn debt financing package
- Newbury-based Vodafone is the third most popular telecoms operator in Spain
Vodafone Group has struck a deal to sell its Spanish business for around €5billion (£4.4billion) under plans to streamline its operations.
Investment firm Zegona Communications, founded in 2015 by former Virgin Media executives Eamonn O’Hare and Robert Samuelson, has agreed to pay €4.1billion in cash for the assets.
Vodafone will also receive up to €900million in preference shares in Zegona that are redeemable no more than six years after the takeover is finalised.
Disposal: Vodafone Group has struck a deal to sell its Spanish business for around €5billion
Madrid-based newspaper Expansión reported last month that Zegona was looking to raise financing to help fund a purchase of Vodafone’s Spanish division.
On Tuesday, the company said the acquisition would be funded through a €4.2billion debt financing package, a €0.5billion revolving credit facility and an equity placing of up to €600million.
Following the deal’s completion, expected during the first half of next year, Zegona will be granted a licensing agreement to use the Vodafone brand in Spain for a decade.
Over that same period, Vodafone will also allow the group access to some of its services, such as mobile roaming and the ‘internet of things’.
Vodafone is the third most popular telecoms operator in Spain behind Telefonica and Orange, with €3.9billion in revenue and earnings before nasties of €1.3billion last year.
However, the Newbury-headquartered business has seen revenues in the country slide over the past couple of years due to stronger competition and a drop in mobile termination rates.
Margherita Della Valle, who became Vodafone’s chief executive in April, said: ‘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 Italian-born boss is seeking to simplify the company’s operations amid pressure from shareholders impatient with a sliding share price and underwhelming trading performance.
She is also spearheading a planned mega-merger between Vodafone and Three UK, owned by the Hong Kong conglomerate CK Hutchison.
Should that go ahead, the enlarged firm would be the biggest telecoms operator in Britain, surpassing EE and Virgin Media O2.
But three weeks ago, the Competition and Markets Authority began examining the deal amid worries it would ‘substantially lessen competition’ in the telecoms sector.
Russ Mould, investment director at AJ Bell, said: ‘Vodafone still needs to simplify its business, having suffered from being in too many markets with too little resource.
‘Marks & Spencer may hold the crown for the slowest turnaround in UK plc history, but Vodafone is right behind. The market has shrugged off the Spanish news, with the shares dipping on the announcement.
‘This suggests the telecoms group needs to be more imaginative in reviving its fortunes; otherwise, its shares might continue to drift.’
Vodafone shares were 0.8 per cent lower at 76.1p at lunchtime on Tuesday and have slumped by around a quarter over the past 12 months.