(Bloomberg) -- Vodafone Group Plc is in talks with Zegona Communications Plc, an acquisition vehicle, about a potential deal for the UK telecom giant’s challenged Spanish unit.
London-based Zegona, which describes itself as having a “buy-fix-sell” strategy, has also approached banks about financing, it said in a statement on Friday. The companies haven’t agreed final terms and a deal may not result from the negotiations, according to the statement.
The announcement followed a report in Spanish newspaper Expansion that Zegona values the unit at more than €5 billion ($5.3 billion), citing unidentified people close to the talks. A spokesperson for Vodafone declined to comment.
Spain’s telecom market is extremely competitive and the sector is attempting to consolidate to pool investments and stem a price war. Vodafone has been trying to do a deal for its unit there for over a year as its earnings have eroded, although it may have to wait until regulators rule on a €19 billion merger between Masmovil Ibercom SA and Orange SA.
The European Union temporarily halted its review of that merger, between Spain’s second and fourth largest mobile operators, in July to allow the companies more time to propose remedies to allay competition concerns.
Zegona has already played a key role in the sector’s consolidation in Spain. Founded in 2015 and run by former Virgin Media Ltd. executive Eamonn O’Hare, the company bought and sold Spanish operator Euskaltel SA to Masmovil Ibercom, a deal which took the market from five players down to four.
What Bloomberg Intelligence Says:
Vodafone’s potential sale of its Spanish arm, 6.5% of Ebitda, to Zegona — a TMT investment fund with experience in Spain, according to Expansion — looks credible but the reported price tag of “more than €5 billion” could turn disappointing. That equates to a 5.3x Ebitdaal multiple, setting a low valuation floor, contrasting with a 6.5x-10x multiple range for comparable deals in Europe. Vodafone acquired the Spanish cable firm ONO in 2014 at a 10.5x multiple, valuing it at €7.2 billion.
— Erhan Gurses, BI telecoms analyst
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Zegona is not the only potential buyer. Private equity firms including Warburg Pincus LLC, Carlyle Group Inc. and Apollo Global Management Inc. have also considered a bid for Vodafone Spain, people familiar with the matter have said.
Former Vodafone Chief Executive Officer Nick Read said the Spanish market needed consolidation, but the company remained sidelined as Orange and Masmovil agreed on a deal.
Margherita Della Valle, who took over from Read this year, has also said the market needs structural action and placed the Spanish unit under strategic review.
Vodafone shares rose 0.8% to 81.69 pence at 11:25 a.m. in London.
(Updates with context starting in the third paragraph.)
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