31st Oct 2023 16:46
(Alliance News) - Zegona Communications PLC hailed an "attractive" deal to acquire Vodafone Spain, but investors in Vodafone Group PLC were less inspired by the deal.
Newbury, Berkshire-based telecommunications provider Vodafone said the transaction values Vodafone Spain at an enterprise value of EUR5.0 billion. Zegona will pay "at least" EUR4.1 billion in cash, and a further EUR900 million in redeemable preference shares.
Zegona is a London-based company focused on communications and entertainment.
Zegona shares have been suspended since it confirmed talk of the acquisition, as the deal with Vodafone's Spanish arm would represent a reverse takeover. Back in late September, Zegona had confirmed it was in talks with Vodafone for Vodafone Spain.
Zegona has a market capitalisation of just GBP1.9 million but is led by former Virgin Media executives and has bought and sold two Spanish telecoms businesses, Telecable and Euskaltel, in the past.
Vodafone and Zegona also will enter into a brand licence agreement, which permits the use of the Vodafone brand in Spain for up to 10 years post-completion. Vodafone and Zegona will enter into other transitional and long-term arrangements for services including access to procurement, internet of things, roaming and carrier services.
"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," said Vodafone Chief Executive Margherita Della Valle.
"My priority is to create value through growth and improved returns. Following the recently announced transaction in the UK, Spain is the second of our larger markets in Europe where we are taking action to improve the group's competitiveness and growth prospects."
Zegona said it will fund the acquisition through a combination of new debt, Vodafone financing, and a new equity raise.
Zegona said it will raise of up to EUR600 million from a sale of new shares prior to completion with third-party investors, as well as taking on new debt. Zegona has entered into committed debt financing of EUR4.2 billion and a committed revolving credit facility of EUR500 million.
It noted that Vodafone is the number-three player in Spain, with "significant" market shares in mobile, broadband and TV. It added that the acquisition has "significant" cash flow potential.
"We are 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," said Zegona Chair & CEO Eamonn O'Hare.
Zegona also said it plans to "simplify and drive the Vodafone Spain business away from a complex, high-cost nature operation".
Vodafone shares traded 1.3% lower at 75.70 pence each in London on Tuesday. It is down 26% over the past 12 months.
AJ Bell analyst Russ Mould commented: "Once a major force in the telecoms sector, Vodafone has lost its way in recent years and has been forced to review its business. That has led to asset sales and mergers with the intention of having a more streamlined platform from which to try and revive growth.
"The latest piece in the jigsaw puzzle is selling its Spanish business to Zegona. This deal is another tick in the box for the company's turnaround efforts but the journey is far from complete. 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."
By Eric Cunha, Alliance News news editor
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