TEF Telefonica SA

By Jeannette Neumann and Ian Walker 

MADRID-- Telefónica SA has agreed to sell up to 40% of its Telxius infrastructure unit to KKR & Co. as the Spanish telecommunications giant seeks funds to whittle down its debt.

Telefónica said KKR will pay EUR1.28 billion ($1.35 billion), or EUR12.75 a share, for Telxius. The unit owns and operates around 16,000 telecommunications towers in five countries and around 31,000 kilometers (19,263 miles) of submarine fiber optic cables.

The price values the entire Telxius business at EUR3.2 billion, the bottom end of the EUR3 billion to EUR3.7 billion indicated range the company had set in September of last year when it announced a plan to float a stake in the telecommunications tower business.

Telefónica said it would maintain a majority stake and operational control of Telxius while continuing to consolidate the unit's results in its accounts. Telefónica shares were down 0.6% in early afternoon trading in Madrid.

Madrid-based Telefónica had tried to float Telxius last year, but was forced to cancel an initial public offering at the end of September because of weak demand. Telefónica had also tried, and failed, to sell its British mobile operator O2 as part of a debt-reduction drive.

Telefónica had EUR50 billion of net debt as of Sept. 30, above the company's market value of around EUR47 billion. The company reports 2016 results on Thursday.

After those failed asset sales, Telefónica cut its dividend at the end of October to appease investors who had been calling for the company to trim its dividend to a more sustainable level, and shift more cash toward paying down debt.

The Telxius deal is the sixth operation that KKR has funded from its $3.1 billion global infrastructure fund, which closed in July 2015 and targets investment primarily in developed countries.

KKR also deployed some of those funds to purchase, for example, a stake in a Spanish solar power developer and operator in July 2015 and to buy a company that provides gas and electricity meters to energy suppliers in the U.K. in December 2016.

Jesús Olmos, KKR's global co-head of infrastructure and head of Spain, said Tuesday that the investment firm aims to support Telefónica's bid to grow Telxius.

"We are confident that the exploding demand for mobile data, driven by the rise in 4K [high resolution] and virtual reality content, together with the need for reliable internet infrastructure will help drive strong growth in the business," Mr. Olmos added.

Write to Jeannette Neumann at jeannette.neumann@wsj.com and Ian Walker at ian.walker@wsj.com

(END) Dow Jones Newswires

February 21, 2017 08:06 ET (13:06 GMT)

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