Blog Coverage Telefónica Divests 40% Stake in Telxius to Private Equity KKR & Co.

LONDON, UK / ACCESSWIRE / February 22, 2017 / Active Wall St. blog coverage looks at the headline from Spanish Telecom giant Telefónica S.A. (NYSE: TEF) and KKR & Co. L.P. (NYSE: KKR) (“KKR”). Telefónica announced on February 20, 2017, that it had agreed to sell its 40% stake of its telecom infrastructure Company Telxius Telecom, to global private equity firm KKR & Co. The strategic move by Telefónica is an effort to improve its financial solidity and reduce its debts, which according to a rough estimate, is around €50 billion. Register with us now for your free membership and blog access at:

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The sale agreement

KKR has agreed to pay €12.75 per share taking the total enterprise value of the 40% stake in Telxius to €1.275 billion (approximately $1.35 billion). This puts the enterprise value of Telxius as a whole at €3.678 billion which is 11.4 times its FY17 EBITDA.

As per the agreement, KKR will initially acquire 62 million shares, which is approximately 24.8% stake in Telxius, for €790 million. KKR would have the call option of acquiring an additional 15.2% stake in Telxius, i.e. around 38 million shares for a minimum of €485 million. The options have to be exercised before end of Q4 2017, if the transaction is finalized. The closing of the transaction is subject to regulatory approvals and closing conditions.

Telefónica will continue to maintain a majority stake and operational control in Telxius post the stake sale. Telefónica will continue to consolidate Telxius in its books of accounts and continue to be the anchor client for Telxius’ tower and cable business. Telefónica and KKR will jointly work towards making Telxius into one of the leading global telecom infrastructure Companies. To this end both Telefónica and KKR will make planned investments in new infrastructure development in Telxius.

KKR plans to finance the stake purchase through its $3.1bn second global infrastructure fund. Telefónica will use the funds raised from the stake sale to optimize its asset portfolio and allocation of capital, and complements its plan for organic debt reduction.

Commenting on the stake sale, Guillermo Ansaldo, Chairman of Telxius said:

“Our vision for Telxius is to capitalize 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.”

Jesus Olmos, Member & Global Co-Head of Infrastructure and Head of Spain at KKR added:

“The combination of Telefonica’s industrial expertise and KKR’s financial and operational support will help Telxius as it continues to scale and grow.”

Background

Telefónica had launched Telxius in February 2016 and had plans to raise funds through an IPO for approximately 40% stake in Telxius. It planned to raise approximately €1.5 billion through the IPO. However, in September 2016, Telefónica scrapped the plan for the IPO citing “inadequate valuation” for Telxius. Since then, Telefónica has been on lookout for suitable partners to sell its 49% stake in Telxius. It was speculated around the second week of February 2017, that Telefónica was in advanced talks with several private equity players including Singapore’s sovereign wealth fund, GIC and KKR.

About the Parties involved in the agreement

Telxius Telecom is an infrastructure Company that provides telecom infrastructure services in Europe and the Americas. Telefónica created Telxius in February 2016. The Company operates through the Cable segment and the Tower segment. Both segments are high growth and have great potential as demand for mobile data and reliable internet connectivity increases. Telxius owns and operates a portfolio of nearly 16,000 telecommunications towers in five countries. It also manages an international network with approximately 65,000 kilometers of submarine fiber optic cables, of which around 31,000 kilometers are owned by Telxius.

Telefónica is one of the largest integrated telecommunications Companies in the world and offers its services via a world class fixed, mobile, and broadband networks. It provides its services jointly with its partners in over 170 countries and has a strong presence in Spain, Europe, and Latin America. It is supported by a 125,000-strong workforce.

KKR is a global investment firm that manages investments across multiple asset classes, including private equity, energy, infrastructure, real estate, credit strategies, and hedge funds.

Stock Performance

At the close of trading session on Tuesday, February 21, 2017, Telefónica’s stock price was slightly up 0.30% to end the day at $9.90. A total volume of 1.05 million shares were exchanged during the session. The Company’s share price has gained 14.98% in the past three months and 7.61% on YTD basis. The stock currently has a market cap of $50.29 billion and has a dividend yield of 11.92%.

KKR & Co.’s share price finished yesterday’s trading session at $18.27, marginally up 0.11%. A total volume of 2.32 million shares exchanged hands. The stock has rallied 21.11% in the last three months, 23.55% in the past six months, and 45.02% in the previous twelve months. Furthermore, since the start of the year, shares of the Company have soared 19.77%. The stock is trading at a PE ratio of 33.28 and has a dividend yield of 3.50%. The market capital of the stock is $14.54 billion.

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