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Those who value simplicity have popularised retro mobile phones. Vodafone’s newish boss Margherita Della Valle wants to revisit its past as a UK-focused operator. In June she expanded Vodafone’s domestic operation by merging it with that of rival Three UK. Tuesday’s announcement of the well-flagged sale of its Spanish subsidiary undoes part of the telecoms group’s expensive European expansion. Della Valle deserves credit for getting through her agenda.
The sale to UK-listed Zegona Communications for up to €5bn helps simplify Vodafone’s structure. Another plus is that the deal should not be hindered by local regulatory hurdles. Expect a close in the first quarter of next year.
Leaving an overly competitive market where Vodafone has struggled as a number three operator makes sense. Vodafone Spain’s average revenue per user (arpu) fell 14 per cent to €13.40 per quarter in the two years to June, according to Barclays. Its UK arpu instead climbed the same percentage to €18.80. And Della Valle can say she got a reasonable deal. Most analysts, including those at New Street Research, had valued the Spanish business at about €4.1bn.
Vodafone deals tend to have twists, and this is no exception. Vodafone will receive a cash minimum of €4.1bn plus up to €900mn in redeemable preference shares of Zegona. Redeemable within six years these will be illiquid. Vodafone’s cash payment could rise (to €4.2bn), and the preference share amount fall, if Zegona issues its target of €600mn of new equity to reduce its debt load raised for this deal.
Spain’s market could remain a mess for some time. If Zegona can turn round the Spanish unit, Vodafone can be all the more confident of getting full value from its preference shares. These securities have debt-like characteristics, paying out initially 5 per cent every year.
Della Valle has stuck to her plan for Vodafone. She should get some applause for that, even if any balance sheet boost is small. New-look Vodafone has at least some features of the older model.
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