Vodafone has confirmed the sale of its Spanish arm to UK investment firm Zegona for $5.3 billion.

Vodafone Spain
– Getty Images

Upon completion, Vodafone’s consideration will comprise at least €4.1 billion ($4.35bn) in cash and up to €0.9bn ($0.95bn) in the Redeemable Preference Shares.

"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 Margherita Della Valle, chief executive of Vodafone.

"I would like to thank our entire team in Spain for their dedication to our customers and relentless determination to improve our organic performance. However, the market has been challenging with structurally low returns.

"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.”

A sale has been on the cards for some time. Over the summer the firm hired investment bank Morgan Stanley and international legal adviser Garrigues in June to help explore a potential sale from the Spanish market.

Reports then surfaced last month that Vodafone had entered talks with Zegona, a company set up by former Virgin Media executives Eamonn O'Hare and Robert Samuelson to invest in European telecom opportunities.

The operator has struggled in Spain in recent years, as revenue has dipped by 16 percent to $4.6 billion from 2018 to 2022. Vodafone has just over 13 million subscribers in the country and is the second-biggest telco in Spain.

However, Vodafone failed to secure a merger with MásMóvil, as MásMóvil instead struck a $19bn merger deal with Orange, though this is still subject to scrutiny.

Della Valle has publicly stated the company's management is open to "structural change," around some of its assets.

Completion of the deal is conditional on certain approvals being obtained from current Zegona shareholders, plus regulatory clearances, and is expected to take place in the first half of 2024.

Vodafone also noted that it will enter into a brand license agreement with Zegona, that permits the use of the Vodafone brand in Spain for up to 10 years post-completion.

Both parties will also enter into other transitional and long-term arrangements for services including access to procurement, IoT, roaming, and carrier services.

"Vodafone’s retreat from Spain comes as little surprise," said Kester Mann, director, consumer, and connectivity, CCS Insight. "The market was placed under a "strategic review" earlier in the year and rumors of a deal with Zegona have been swirling for weeks.

"Spain has long dragged Vodafone’s financial performance due to intense market competition and low returns. As such, the disposal is likely to be welcomed by its long-suffering shareholders."

– Telefonica

Spanish government ponders Telefónica stake

Elsewhere in Spain, the Spanish government is considering plans to obtain a stake in rival telco Telefónica, to counter Saudi Telecom Company's (STC) plans to become the biggest shareholder in the telco.

Reuters notes that the government is weighing up plans to buy a stake via the sovereign wealth fund Sociedad Estatal de Participaciones Industriales (SEPI).

STC had announced plans to increase its stake in the telco to 9.9 percent last month after it had agreed to pay $2.25 billion.

However, it has since been reported that STC will keep its current share at 4.9 percent.

As Telefónica is considered a defense service provider and a strategic company, the Spanish government has a say in acquisitions and holdings between five and 10 percent.

In a stock market filing on Tuesday, SEPI noted it was carrying out an "exploratory internal analysis over a potential acquisition" of a stake in Telefónica.