After many negotiations and rumors, the british fund zegona announced this Tuesday the purchase of Vodafone Spain for 5,000 million euros. The one who was CEO of Euskaltel and Jazztel until their respective sales, Jose Miguel Garcia, will be the brand’s top executive, as announced by the British fund. The company expects to complete the acquisition, now subject to the relevant regulatory authorizations, in the first quarter of 2024.
In a statement, Zegona explains that the transaction will be carried out with a cash payment of at least 4.1 billion euros And till 900 million euros in the form of preferred shares into a newly created entity (‘Newco’) which will use the funds to subscribe for new ordinary shares in Zegona. This new entity undertakes not to exercise its voting rights in Zegona (except in the case of an acquisition) and the shares will be transferable and redeemable no later than six years after their issue.
Furthermore, Vodafone will provide certain services to Vodafone Spain for a total annual service cost of 110 million euros. Thus, both companies have signed a brand agreement which will allow Zegona to use the Vodafone brand in Spain for a maximum of 10 years after its financing. In addition, they are expected to enter into other transitional and long-term agreements for services including procurement access, IoT, mobile roaming and operator services.
As reported by the fund, the acquisition will finance through a combination of new debtfinancing from Vodafone and a new capital increase, as reported by the company. Thus, it has subscribed a committed debt financing for a value of 4.2 billion euros and a revolving line of credit in the amount of 500 million euros. For its part, Vodafone will contribute up to 900 million euros of financing and the capital increase will be up to 600 million euros of internal investors. Following the capital increase, the new debt facility is expected to generate a position of net debt at closing of 3.7 billion euroswhich represents a leverage of 2.9 times.
“The sale of Vodafone Spain It is a key step in sizing our portfolio for growth and will allow us to focus our resources on markets with sustainable structures and sufficient local scale. I would like to thank our entire team in Spain for their dedication to our clients and their tireless determination to improve our organic performance. However, the market has faced challenges with structurally low returns,” explained the CEO of Vodafone, Margherita Della Valle. The value of 5,000 million euros for the company is equivalent to a multiple of 5.3 times the gross operating profit (Ebitda).
His counterpart at Zegona, Eamonn O’Hare, has expressed the “excitement” to “return to the Spanish telecommunications market.” “This financially attractive acquisition marks our third agreement in Spain after successful restructuring in Telecable and Euskaltel. With our clearly defined strategy and proven track record, we are confident that we can create significant value for shareholders,” said Zegona CEO, Eamonn O’Hareit’s a statement.
‘Modus operandi’
The British fund is an old acquaintance in Spain, acquiring the Asturian cable operator in 2015 Telecable for 640 million euros, a company that would later buy Euskaltel in 2017 for 686 million euros. In Euskaltel, Zegona reached a share of 21.4%, becoming the largest shareholder of a company of which he ceased to be a part after the purchase by MásMóvil in 2021. And that is Zegona’s ‘modus operandi’: acquire business in the telecommunications, media and technology sector with the objective of “buy, repair and sell” to offer “attractive returns to shareholders”, according to the British fund itself on its website.
According to the statement, Zegona’s objective from now on will be to “transform the business” to offer a “service exceptional to clients and returns attractive to investors” through a “management highly experienced” with the appointment of Jose Miguel Garcia as CEO, improving the efficiency “reducing complexity and boosting productivity” and stabilizing income “with new commercial initiatives”
Market competition
Related news
The enormous competitive pressure of the telecommunications market in Spain has led Vodafone to lose many clients in favor of low-cost operators. The Spanish subsidiary records some service revenues (those directly related to telecommunications services and that better measure the evolution of the business) of 3,514 million in its fiscal year, a 5.4% less than in the previous year. This led the company to consider selling it.
It was in May of this year, in addition, the new CEO of the group, Margherita Della Valle, admitted that she would review the strategy of the Spanish subsidiary and left the door open to a possible divestment. Della Valle then added that any decision taken would be aimed at “maximizing shareholder value.” Vodafone had been rumored to join MásMóvil before the fourth Spanish operator’s announcement to merge with Orange.