In a strategic move to bolster its performance amid sluggish growth in mature telecom markets, UK-based Vodafone has announced the sale of its business in Spain to Zegona Communications.
The deal, valued at 5 billion euros ($5.30 billion), marks a significant step in Vodafone CEO Margherita Della Valle’s efforts to revamp the company. Zegona is led by former Virgin Media executives Eamonn O’Hare and Robert Samuelson.
Vodafone Spain had gross assets of €7.6 billion as at 31 March 2023. Vodafone Spain generated a loss before tax of €383 million for the 12-months period 31 March 2023, the telecom operator revealed today.
Vodafone Spain has generated sales of €965 million during April-June 2023. Vodafone Spain’s service revenue fell by 3 percent due to a lower customer base and price competition in the Consumer value segment, partially offset by price increases.
Vodafone Spain lost 87,000 mobile contract customers. Vodafone Spain also lost 65,000 broadband users during the April-June quarter. This was in part due to a higher level of customer churn following CPI-linked price increase.
Vodafone Spain has closed 15 percent of retail stores and chose not to renew several sales dealership channels in order to increase distribution efficiency. Vodafone Spain earlier noted that customer net addition trends have improved again since the start of June.
Vodafone said it will continue to retain presence in Spain through the brand license agreement with Zegona and European R&D Centre in Malaga. Vodafone is the third largest mobile operator in the Spain telecom market at present.
Vodafone said the deal will have a slightly accretive effect on Vodafone’s adjusted earnings per share and a dilutive effect on free cash flow.
Vodafone has faced challenges in the highly competitive Spanish market, where it ranks third among telecom providers, trailing behind Telefonica and Orange. The latter has recently been working on a merger with MasMovil, the fourth-largest player in the Spanish telecom industry.
Vodafone Chief Executive Margherita Della Valle, who took the helm in April, has been resolute in her commitment to reshaping the telecoms group for increased profitability. This decision to exit the Spanish market aligns with her vision of concentrating resources in markets with sustainable structures and sufficient local scale, Reuters news report said.
The agreement includes a cash consideration of at least 4.1 billion euros, along with 900 million euros in financing in the form of preference shares redeemable no later than six years after the deal’s closure. Following this announcement, Vodafone’s shares opened 1.3% higher, indicating investor approval of the move.
The sale of its Spanish business is part of Vodafone’s broader plan to streamline its assets, driven by the need to recover from a slide in shares to 20-year lows earlier this year. In addition to the Spanish exit, CEO Della Valle had previously announced 11,000 job cuts as part of the company’s restructuring efforts to improve profit.
The deal also represents a significant move for Zegona Communications, a British company with a history of acquiring and selling telecom assets in Spain. Zegona will fund the acquisition through a combination of 4.2 billion euros in new debt, the financing provided by Vodafone, and an equity raise of up to 600 million euros.
Zegona’s Chairman and CEO, Eamonn O’Hare, expressed excitement about returning to the Spanish telecoms market. He noted that the financially attractive acquisition is the third deal Zegona has made in Spain after successful turnarounds at Telecable and Euskaltel. O’Hare is confident that with their well-defined strategy and proven track record, they can create significant value for shareholders.
The Vodafone-Zegona deal is poised to reshape the telecom landscape in Spain while allowing Vodafone to focus its efforts on promising markets, reflecting the evolving dynamics of the telecommunications industry.