KKR pays €1.3bn for 40% of Telxius after scrapped IPO

The deal values the company at €3.7bn just a year after the Telefónica infrastructure subsidiary was formed.

KKR has agreed a deal that will see it pay Spanish telecoms firm Telefónica €1.3 billion for up to 40 percent of its infrastructure division Telxius.

The deal, priced at €12.75 per share and 11.4 times Telxius’ 2017 EBITDA, comprises an initial €794 million acquisition of 24.8 percent of the company’s shares with the option to buy a further 15.2 percent for €485 million.

It gives the investment firm access to Telxius’ ownership of 16,000 telecommunications towers in five countries and 31,000km of submarine fibre optic cables, part of a wider 65,000km portfolio it manages for other clients. Telxius was set up by Telefónica in February 2016 to manage its infrastructure assets as a separate company.

The deal was funded through KKR’s $3.1 billion Global Infrastructure Investors II fund which closed in July 2015. KKR had invested just under $1 billion of the capital as of the end of last year, sealing deals for Spanish developer Gestamp Solar and Deutsche Glasfaser, another fibre optic network operator based in Germany.

“The combination of Telefonica's industrial expertise and KKR's financial and operational support will help Telxius as it continues to scale and grow,” said Jesus Olmos, global co-head of infrastructure at KKR. “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.”

KKR’s bid held off competition from the likes of Ardian, CVC and GIC, which had all been in the running for Telxius, according to Reuters. Telefónica confirmed to regulator CNMV that it had received several offers for Telxius without mentioning the companies. Ardian declined to comment while CVC and GIC had not responded to requests by press time.

The sale process was launched towards the end of last year after Telefónica scrapped plans for an IPO of Telxius in September, citing lack of investor interest in the €12-15 per share price range. The parent company had been looking for ways to reduce its debt and raise capital through the Telxius sale after an agreed merger of its UK subsidiary O2 with rival operator Three was rejected by the European Commission in May.