Zegona’s Vodafone payday rests on regulatory nod

Zegona Communications

27/08/2025 12:29

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Jennifer Johnson

LONDON, Aug 27 (Reuters Breakingviews) - London-listed Zegona Communications ZEG.L is emerging as a surprise winner in Europe’s telecom consolidation. Its shares have skyrocketed more than 350% since it bought Vodafone’s VOD.L Spanish unit from its parent company in May 2024. That return in part reflects smart dealmaking, and operational improvements. But it also rests on the hope for a potential sale, and lenient antitrust authorities.

The sale to Zegona came about amid a period of retrenchment at Vodafone following the appointment of CEO Margherita Della Valle, who promptly offloaded the group’s underperforming Spanish and Italian units. Zegona, set up by former Virgin Media executives Eamonn O’Hare and Robert Samuelson, paid 5 billion euros for the business, equivalent to 5 times the group’s reported 2023 EBITDA after lease payments, but 3.8 billion euros of that was funded with debt, as well as a 900 million euro slug of preference shares provided by Vodafone.

Since then, Zegona’s share price has soared, and its market capitalisation is now 9 billion pounds. Operational improvements have helped. Vodafone Spain’s new owners went on a cost-cutting drive, reducing headcount by around 30%. Its EBITDA margin stood at just over 49% in the quarter ending June 2025, up 4 percentage points from the previous year.

Anticipation of a tidy shareholder return is likely in the mix, as well. Singapore’s sovereign wealth fund, GIC, took a stake in a fibre joint venture with Vodafone Spain and MasOrange earlier this month. Berenberg analysts reckon this could give Zegona the funds it needs to pay a 1.4 billion euro dividend and redeem Vodafone’s preference shares.

Yet Zegona’s current valuation looks rich. It is now worth over 8 times forward EBITDA, according to LSEG data, versus peer Telefónica TEF.MC on less than 6 times. That may be partly due to hopes of a deal with the Spanish group, as reported by El Confidencial. But a combination of Telefónica and Vodafone Spain would leave the new entity with a 45% share of Spain’s mobile market, and a 46% chunk of the broadband market, as per UBS numbers. That could be a tough sell for regulators in Brussels.

That makes a carve up more likely, with Zegona selling assets to the other three players in Spain, including MasOrange, and Romanian new entrant Digi Communications DIGI.BX. It helps that European regulators are more willing to stomach consolidation to foster growth, and Spain’s government will be keen for Telefónica, which is now the country’s second largest telecom player, to bulk up.  Yet any deal will be complex. It would also likely see upstart Digi, which UBS says has a roughly 10% share of Spain’s mobile and broadband market, gain more scale, making it a tougher competitor. To justify its valuation, Zegona will need to pull off yet more savvy dealmaking.

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CONTEXT NEWS

Telefónica is mulling a bid for Vodafone Spain, Spanish news website El Confidencial reported on August 26, citing unidentified sources.

The business was purchased from its former parent Vodafone in 2024 by London-listed investment group Zegona Communications.

Zegona’s shares have risen nearly 250% over the last year, and are currently worth 1,200 pence as of 1045 GMT on August 27.

Zegona's returns have trounced its bigger peers https://www.reuters.com/graphics/BRV-BRV/akpexjabgvr/chart.png

(Editing by Neil Unmack; Production by Streisand Neto)

((For previous columns by the author, Reuters customers can click on JOHNSON/Jennifer.Johnson@thomsonreuters.com))