Bankinter | Telefónica is hiring a financial advisor to evaluate possible acquisitions in Europe. One of the companies being considered is Vodafone Spain.
Bankinter analysis team’s view: The operation could be interesting to reduce the competitive intensity in Spain, where the market would be dominated by three operators instead of four, but its execution would be complex and would take time. Telefónica would have to assess well the synergies and benefits of the operation at the cost of increasing its debt and/or raising capital.
Moreover, as has been the case in other operations such as Masorange, EC approval would be long and difficult.
Vodafone Spain is the third largest operator in the Spanish market and was acquired by the British investment fund Zegona about a year ago for €5 billion. The integration of the two operators would allow for a more comfortable competitive environment in Spain. The disappearance of a major player would reduce churn (the flight of customers to other operators) allowing a reduction in commercial investment (the cost of acquiring a customer) and an improvement in cash generation. There would also be industrial synergies through the integration of the distribution and customer service infrastructure and channels of both companies.
In the financial year ended March 2024, Vodafone Spain had revenues of €3,846m (9.3% of Telefónica’s) and EBITDA of ~€1,280m (9.6% of Telefónica’s). Its Net Debt amounted to €3,540m (13% that of Telefónica). Vodafone Spain has a slightly higher EBITDA margin than Telefónica (33.3% versus 32.1%), but is slightly more indebted (2.8x versus 2.6x). A €5 billion deal would represent 18.7% of Telefónica’s market capitalisation and 18.5% of its Debt. Without details of the cost of the deal, its financing (debt and/or equity) and the resulting synergies it is impossible to assess the attractiveness of the deal, although from a strategic and industrial point of view it makes sense.
