Euskaltel and Zegona agree deal for single northern Spanish cable operator

Spanish regional operator Euskaltel has struck a deal with UK-based Zegona Communications to acquire Telecable in a deal that values the Asturias operator at €686 million.

The move paves the way to create a single operator across the Basque Country, Asturias and Galicia, where Basque Country-based Euskaltel already owns regional player R.

Euskaltel will take 100% control of Telecable for €686 million including an estimated €245 million in debt in a deal that will see Zegona become a 15% shareholder in the Basque operator, with one seat on the board. Euskaltel may make an additional payment of €15 million dependent on the future performance of Telecable.

Zegona will receive €186 million in cash along with €255 million worth of Eusklatel shares at a price of €9.50. The balance of the transaction is comprised on debt. Overall, the deal values Telecable at about 10.5 times 2016 EBITDA before synergies are taken into account.

The pair have estimated that the deal will realize €245 million in synergies, mostly from operational expenses. Currently, Telecable uses mobile capacity from Telefónica while Euskaltel is supplied by Orange.

For Zegona the deal represents a premium of 41% on its current share price and gives a return of 42% to shareholders on their initial investment in the company.

Zegona will have one seat on the seven-strong board. The combined operator will also create a new strategy committee comprising one representative each from Zegona, Kutxabank and Corporación Financiera Alba, the company’s main shareholders.

The combination of Euskaltel, R and Telecable will give the company a market of six million people, an increase of 20% on Euskaltel and R’s previously addressable market, and a combined subscriber base of about 800,000. The operators had consolidated revenues of €701 million and EBITDA of 346 million, with free cash-flow of €224 million.

The Basque Country, Galicia and Asturias together represent an eighth of the total Spanish population and a similar proportion of its GDP.

Euskaltel Group chairman Alberto García Erauzkin said that the group’s “intention is to maintain each of the companies’ values, such as the trademarks and the people’s talent, as they are the key of their success”. Erauzkin said that “this transaction completes the full cable consolidation in the north of the State. Euskaltel, and R and Telecable, are leaders in our markets and the addition of the three great north operators makes as leaders in the State”.

Eamonn O’Hare, Zegona’s Chairman and CEO, said: “When we acquired Telecable in 2015, we identified the potential for substantial value creation through the combination of the three independent Northern Spanish Cablecos. This transaction turns that vision into reality and provides the opportunity for significant value gain through delivering the high level of synergies available and from the increased strength of the combined business. Being the leading regional operator in Spain, Euskaltel is very sensitive to the local needs in Asturias and we know will provide great support to the Telecable business and team. We look forward to working closely with the Euskaltel Board and the team as we together define the next exciting chapter of Euskaltel’s and Telecable’s development.”

O’Hare said that the agreement would also enable Zegona to “bring increased focus” to its “search for the next investment” where it can apply a ‘buy-fix-sell’ strategy.

The deal comes after three months of negotiations that appeared close to stalling over Zegona’s desire for influence over the combined entity. The new company will vie with mobile player MásMóvil for the position of Spain’s number four telecoms player, after Telefónica, Vodafone and Orange.