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Vodafone has agreed to sell its Spanish business to a fund founded by two former Virgin Media executives for up to €5bn, as the UK’s largest telecoms group makes good on its promise to shrink its sprawling European operations.
The UK operator said on Tuesday that it would sell the business, which controls almost a quarter of the Spanish market, to Zegona Communications.
Zegona, which was founded in 2015 by Eamonn O’Hare and Robert Samuelson to buy telecoms assets, will pay at least €4.1bn in cash. Vodafone will also buy up to €900mn of preference shares in Zegona, which is listed in London.
The disposal is Vodafone’s biggest step yet in scaling back its European businesses, many of which produced lacklustre returns in recent years. Revenues at its Spanish division fell 6.5 per cent year on year to €3.9bn.
It is also the first significant deal by new chief executive Margherita Della Valle since stepping up from chief financial officer in April, and after vowing to streamline its European operations amid pressure from shareholders.
Della Valle said on Tuesday that the sale was “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”.
Turnover at its Spanish business has lagged Vodafone’s other main European markets, Germany, the UK and Italy. Its almost 23 per cent share of the Spanish market makes it the third-biggest operator in the country behind Telefónica and French telecoms group Orange, according to Statista.
The fourth operator is MasMovil, which is waiting for clearance from the European Commission to establish a joint venture with Orange. Vodafone had been in talks with MasMovil in 2021 about merging its Spanish business.
As part of the deal with Zegona, Vodafone has agreed to provide certain services to Vodafone Spain for an annual service charge of about €110mn.
Vodafone said it would decide on the use of the proceeds of the deal after a broader capital allocation review. Shares in Vodafone were down 1.2 per in early London trading on Tuesday. The stock has fallen by more than a quarter over the past 12 months.
The two companies have a brand licence agreement, which allows Zegona to use the Vodafone brand in Spain for up to 10 years post completion. They will also enter into other transitional and long-term arrangements for services including access to procurement and roaming services.
In June, Vodafone announced plans to merge its domestic business with CK Hutchison-owned Three UK in June. The deal is being probed by the UK’s competition regulator.
O’Hare, chief executive of Zegona, told the Financial Times that if the MasMovil-Orange venture fails to complete, such as if remedies proposed by regulators are not acceptable to the companies, then he would want to reopen talks for a merger between Vodafone Spain and MasMovil.
“If they walk away, then there’s no doubt we’ll go and have a chat to MasMovil and say well that didn’t work for you. What about this?” he said, adding that Zegona wants to talk to Telefónica, MasMovil and Orange about sharing opportunities across mobile, fixed line, fibre and databases.
Zegona plans to simplify the Spanish business but shake up its culture to become “a lot more like a local challenger”.
The Vodafone Spain deal is expected to close in the first half of next year.
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