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KKR buys stake in Telefonica cable and tower business Telxius

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Telefonica has reached an agreement with global investment firm KKR Group for the sale of up to 40 per cent of Telxius Telecom, its global infrastructure company established a year ago, for a total amount of €1,275 million.

Under the agreement, which is subject to regulatory approvals, Telefónica and KKR will become partners as the operators of telecom infrastructure, which they plan to expand.

Telxius owns and operates a large portfolio of nearly 16,000 towers in five countries. It also manages an international network with approximately 65,000km of submarine fibre-optic cables, of which around 31,000km are owned by Telxius. Both business units benefit from attractive growth in their core markets, as the use of mobile data and the demand for reliable internet connectivity continue to grow rapidly, particularly in Spain and Latin America.

Following the deal, Telefonica will remain the anchor client for Telxius’ tower and cable businesses. It will keep a majority stake and operational control of Telxius and continue to consolidate it into its accounts. The sale is part of Telefonica’s strategy to optimise its asset portfolio and allocation of capital, and complements its plan for organic debt reduction.

Guillermo Ansaldo, chairman of Telxius said: “Our vision for Telxius is to capitalise on the exponential increase in data traffic forecast for the coming years by offering a first-class network in Europe and the Americas. We are delighted to have KKR on board as a long-term investment partner. We believe their solid track-record on the infrastructure business will help us achieving our common goals”.

Jesus Olmos, member and global co-head of infrastructure and head of Spain at KKR, said: "The combination of Telefonica's industrial expertise and KKR's financial and operational support will help Telxius as it continues to scale and grow. We are confident that the exploding demand for mobile data, driven by the rise in 4K and virtual reality content, together with the need for reliable internet infrastructure will help drive strong growth in the business."

The deal implies an enterprise value of €3,678 million for Telxius, or 11.4 times its 2017 earnings before tax and interest. The agreement confirms the valuation established for Telxius in the memorandum for its attempted initial public offering, which was between €12 and €15 per share. The transaction values Telxius’s equity at €3,188 million (€12.75 a share).

Under the agreement KKR will initially acquire €62 million shares (24.8 per cent of the total shares) of Telxius for €790 million, and includes the option to buy and sell an additional 38 million shares (a further 15.2 per cent of the total) for at least €485 million. Such options are related to a call option, exercisable by KKR and a put option, exercisable by Telefonica upon maturity of the call option.

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