October 19, 2018 / 11:01 AM / in a month

UPDATE 1-Turnaround specialist Zegona to raise stake in Spain's Euskaltel

(Adds CEO comments, reaction)

LONDON, Oct 19 (Reuters) - Britain’s Zegona Communications , set up to invest in European tech and telecoms companies, said on Friday it was increasing its stake in Spain’s Euskaltel to 29.9 percent to give it more influence on the board.

The move puts Zegona’s holding at just below the 30 percent threshold whereby a shareholder is required to make a takeover bid. Zegona chairman and CEO Eamonn O’Hare said the company wanted to remain a significant minority shareholder.

Zegona, set up by former Virgin Media executive O’Hare in 2015 to operate a “Buy-Fix-Sell” strategy, already owns 15 percent of the Northern Spain-focused telecoms group.

Zegona said it would buy an additional 14.9 percent stake in Euskaltel for 7.75 euros each in a tender offer.

Shares in Euskaltel jumped 10 percent to 7.25 euros on the news as the offer price was at an 18 percent premium to the shares’ closing price on Thursday.

O’Hare said there was potential to increase revenue, cut costs and accelerate expansion at Euskaltel, which has seen its shares drop by 37 percent since its stock was split in 2015.

Euskaltel could also potentially benefit from Zegona executives’ long-standing relationship with Richard Branson’s Virgin Group by using the Virgin brand to expand into new regions in Spain, he said.

“We see opportunities where our industry knowledge and experience can be valuable to Euskaltel, and we look forward to continuing our constructive relationship with the leadership team to help return the business to growth,” O’Hare said in a statement.

“Our objective is to be in a significant minority position.”

Zegona became a Euskaltel shareholder in 2017 when the Spanish company, which has about 663,000 customers in the Basque Country and Galicia and Asturias, bought Zegona-owned quadplay operator Telecable.

Increased ownership will give the British group greater participation on Euskaltel’s board in addition to Robert Samuelson, Zegona’s chief operating officer.

Former savings bank Kutxabank is the biggest shareholder of Euskaltel with a 21 per cent stake, and Alba, a Spanish investment group, holds an 11 per cent stake.

Spokesmen for Kutxabank and Alba declined to comment on Zegona’s offer.

Fernando Cordero, an analyst at Santander, said he believed the tender offer would be very well received.

“In our view this deal blocks any short-term M&A scenario in Euskaltel,” he said.

O’Hare said Zegona was increasing its stake via a tender in order to be open and transparent and straightforward towards all shareholders.

“It’s a very shareholder friendly approach rather than trying to build a secretive position behind closed walls,” he told Reuters in a phone interview.

Zegona said it would fund the investment through an equity raising of up to 225 million pounds ($293 million) from institutional investors.

$1 = 0.7669 pounds Reporting by Paul Sandle in London and Andres Gonzalez Estebaran in Madrid; Editing by Kirsten Donovan and Susan Fenton

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