Vodafone Group struck an agreement to sell its Spanish operations to Zegona Communications in a deal worth up to €5 billion, a move which will see it exit a market with competitive dynamics bemoaned by a string of bosses.

Under the agreement, Vodafone will receive €4.1 billion in cash with a further sum of up to €0.9 billion in the form of redeemable preference shares.

After completion, the operator group will provide a range of services to the new owners for an annual fee of €110 million. This includes access to procurement, carrier services and a licensing agreement to use the current brand for up to ten years.

The pair have been in talks over the agreement since at least September, when Zegona revealed discussions were underway.

Vodafone CEO Margherita Della Valle said the sale of the asset was “a key step in right-sizing our portfolio for growth, and will enable us to focus our resources in markets with sustainable structures and sufficient local scale”.

She noted Spain had been “challenging with structurally low returns”.

“My priority is to create value through growth and improved returns,” she added. “Following the recently announced transaction in the UK, Spain is the second of our larger markets in Europe where we are taking action to improve the group’s competitiveness and growth prospects.”

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Spain is the second of our larger markets in Europe where we are taking action to improve the group’s competitiveness and growth prospects

Margherita Della Valle Vodafone Group CEO

In its statement, Zegona’s chair and CEO Eamonn O’Hare said: “This financially attractive acquisition marks our third deal in Spain after successful turnarounds at Telecable and Euskaltel.”

“With our clearly defined strategy and proven track record, we are confident that we can create significant value for shareholders.”

The deal is subject to regulatory clearances and is expected to close in the first half of 2024.

Vodafone’s planned exit from Spain comes as little surprise given regular media speculation surrounding the unit and three consecutive group CEOs complaining about the state of the market over the course of more than five years.

The unit was placed under strategic review earlier this year as part of a wider plan to revive some its flagging European units.

Prior to Orange and Masmovil signing a deal to merge operations in Spain, Vodafone had been linked to a similar agreement with the latter.

CCS Insight director consumer and connectivity Kester Mann said Spain had long dragged on Vodafone, noting “the disposal is likely to be welcomed by its long-suffering shareholders”.

He noted when Della Valle “set out her initial strategy for Vodafone in May, she said it has to change”.

“Today’s news is the first major tangible evidence of her priority to slim down, refocus and cut debt. She will now be hoping to build on the Spain exit by securing vital regulatory approval to merge with Three in the UK.”