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(Alliance News) - Vodafone Group PLC and smaller London listing Zegona Communications PLC on Tuesday announced the sale of Vodafone Spain to Zegona.
Zegona also updated its shareholders on future plans for the Spanish arm, as well as its future dividend policy.
Vodafone is a Newbury, Berkshire-based telecommunications provider. Zegona is a London-based company focused on communications and entertainment.
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.
Vodafone shares were down 0.3% to 76.51 pence each in London on Tuesday at about midday. The wider FTSE 100 index was up 0.5%.
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.
Under the sale agreement, 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.
"The Zegona Group has significant relevant experience in the Spanish telecommunications market, including through its ownership of Telecable and shareholding in Euskaltel. Having followed the business closely for some time, Zegona views Vodafone Spain with the same enthusiasm it had for Telecable and Euskaltel," Zegona said.
Further, following completion, Zegona intends to pay a 2% initial dividend yield target with a progressive dividend policy. "This is a target and not a forecast," it warned.
Zegona also said it plans to "simplify and drive the Vodafone Spain business away from a complex, high-cost nature operation."
"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.
The deal needs approval by Zegona shareholders, as well as regulatory clearances, and is expected to take place in the first half of 2024.
By Sophie Rose, Alliance News reporter
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