Zegona mulls network sale or merger for Vodafone Spain

Source: Vodafone

Zegona Communications, the UK-based investment outfit in the process of acquiring Vodafone España, is looking at the possibility of divesting the operator’s fixed network into a new ‘Netco’ vehicle, either for the sale of the network to an outside investor or to merge it with the network of an existing Spanish operator such as the combined Orange/MásMóvil or Telefónica.

In information submitted to the London Stock Exchange and in its prospectus for the acquisition, Zegona estimated that a deal involving a merger with an existing network could in theory deliver gross proceeds of up to €3.5 billion based on an analysis of similar transactions.

The company said that a netco transaction in the form of a sale of the network to an outside investor would likely require an upgrade of the existing Vodafone HFC network to full fibre and would in theory have a value of about €2 billion.

Zegona had previously considered similar moves in relation to the Euskaltel network when it was the controlling shareholder in the northern Spanish operator, but this ultimately was put on ice when the sale of the company to MásMóvil was agreed.

The company said there was no guarantee it would be able to deliver a Netco agreement in either form or realise the values it had identified.

Zegona said it also sees upside from the current plan for a merger between rival operators MásMóvil and Orange España. It said that if the merger does not complete there could be an opportunity to merge Vodafone with MásMóvil “which could produce significant opportunities for similar synergies” to the €450 million identified in the Orange/MásMóvil case.

The UK investment outfit said it believed such a deal may not be subject to European competition approvals because both MásMóvil and a Zegona-owned Vodafone España would have almost all of their operations based in Spain itself.

If the Orange/MásMóvil merger goes ahead, on the other hand, Zegona believes that Zegona-owned Vodafone would be in a good position to compete with an entity that would be constrained to some extent by its level of indebtedness.

Outside of the potential for deals for the network or the entire company, Zegona said it had identified significant cost savings that could be made within Vodafone for example by moving subscriber acquisition to digital channels and by cutting TV content costs and IT and technology costs, as well as wholesale access costs.