At Spain’s Undersized Phone Carriers, Years of Deals Beckon

  • Telecable owner predicts mergers after losing Yoigo auction
  • Zegona Chairman O’Hare expects larger bundled player to emerge

Spain’s smaller cable-TV and mobile-phone providers need to join forces in the coming years to compete with heavyweights such as Telefonica SA and Orange SA, according to Zegona Communications Plc, the owner of one of those carriers.

Zegona’s Telecable will most likely end up merging with cable peers Euskaltel SA and Grupo R in northern Spain over the next two to four years, Zegona Chairman and Chief Executive Officer Eamonn O’Hare said in an interview. Within six years, they are likely to join with wireless providers like Masmovil Ibercom SA, he said.

“Whether you’re in the driver’s seat in that sequence or the passenger seat, that all has to be played out,” O’Hare said.

Bigger carriers are looking to plant their feet more firmly in domestic markets after expanding geographically, according to O’Hare. That creates opportunities for companies like Zegona, which was founded to find European telecom businesses it can turn around. The focus is on markets where there is progress in creating a few large players offering phone, internet and TV packages, and Spain is near the top of the list, he said.

O’Hare made the comments after losing a bid last month for Yoigo, a Spanish mobile operator owned by Telia AB. Masmovil agreed to pay 625 million euros ($695 million) for Yoigo, edging out Zegona. Winning would have given Zegona a foothold in the national Spanish mobile market.

Founded by former Virgin Media executive O’Hare and a group of partners, London-listed Zegona has declined 16 percent this year. The company has identified potential targets around Europe that are similar to its first deal, for Telecable.

Zegona counts Marwyn Investment Management LLP, Invesco Ltd and Wellington Management Group LLP as investors. To attract capital, Zegona has highlighted 180 carriers across Europe that are ripe for convergence. If new opportunities materialize, Zegona could sell shares or raise debt to fund an acquisition, he said. Zegona’s “sweet-spot" are assets valued from 1 billion to 3 billion euros, according to O’Hare. After buying, Zegona cuts costs, he said.

"Our strategy is to find assets, fix them on the operational level in a way that fundamentally changes the cash-flow dynamics of the business," O’Hare said.

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