After months of speculation, Vodafone Group PLC (LSE:VOD)’s sale of its loss-making Spanish arm has finally been confirmed, with UK-based Zegona Communications (LSE:ZEG) the lucky buyer.
The €5 billion reverse takeover, mainly serviced through debt alongside up to a €600 million equity round, is supported by a €900 million discretionary financing agreement from Vodafone itself, depending on the result of Zegona’s share offer.
It is a substantial undertaking for Zegona if it wants to turn the flailing provider around, but the group is hardly a novice.
Incorporated in 2015 by former Virgin Media executives Eamonn O’Hare and Robert Samuelson with the backing of Marwyn Investment Management, Vodafone won’t be their first Spanish telecoms rodeo.
Back in 2021, Zegona returned over £300 million to shareholders after exiting its investment in Basque Country telecoms group Euskaltel to Masmovil, which bought for a €3.5 billion valuation.
O’Hare, Samuelson and Marwyn set up Zegona’s with a Melrose-like, “buy-fix-sell” strategy, which they touted as key to the bumper Euskaltel exit.
Shareholders received a 92% return on net invested capital as a result, with O’Hare commenting at the time: “We are already actively working on other potential investment opportunities within the European TMT industry which we believe remains fertile ground to once again create significant shareholder value."
Prior to that, Zegona exited its position in Telecable to Euskaltel in 2017, returning £140 million to shareholders as a result.
During O’Hare’s four-year stint as Virgin Media’s chief finance officer, he oversaw the group’s sale to John C. Malone’s Liberty Global (NASDAQ:LBTYA) for $23.3 billion, creating the largest broadband company in the world at the time.
Zegona co-founder Samuelson was acting as Virgin Media’s executive director of group strategy when the deal was executed.
These were good deals, but Zegona’s Vodafone Spain takeover marks O’Hare’s and Samuelson’s grandest endeavour yet.
Zegona, in its own words, typically targets telecoms businesses worth between £1 billion and £3 billion that need “active change in order to realise their potential”.
This may include changing the business market position, disciplined cost efficiency and operating profitability, divestments and “innovative techniques to separate and monetise infrastructure assets”.
"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 O’Hare in today’s press release.
Part of this strategy will see Zegona “improve efficiency by reducing complexity and driving productivity”.
Is this a whole load of words to describe plain old asset stripping of Vodafone Spain’s €7.6 billion gross assets? That will be determined in due course.