Telefonica to Divest up to 40% of Infrastructure Operations to KKR for Euro 1.275B

Telefónica announced it has reached an agreement with global investment firm KKR Group for the sale of up to a 40% stake of Telxius Telecom, its global telecommunications infrastructure
company, for a total of Euro 1,275 million, or Euro 12.75 per share.

Under the agreement, which is subject to regulatory approvals, Telefónica and KKR plan to partner to develop and expand the global telecom infrastructure operation, including through the development of new infrastructure projects.

Telefónica's infrastructure arm Telxius, established in February 2016, owns and operates a portfolio comprising nearly 16,000 telecom towers in five countries and manages an international network with around 65,000 km of submarine optical cable, including around 31,000 km owned by Telxius. The Telxius-owned network includes SAM-1 linking the U.S., Central and South America, PCCS (Pacific Caribbean Cable System) and Unisur, which connects Uruguay and Argentina.

In addition, it is currently deploying BRUSA, linking Brazil, Puerto Rico and the U.S., and MAREA linking the U.S. and Europe in partnership with Google and Facebook, with both cable systems due to be operational in 2018.

On completion of the proposed deal, Telefonica will remain the anchor client for Telxius' tower and cable businesses, and will retain a majority stake and operational control of the business and continue to consolidate it into its accounts. The sale is part of Telefonica's strategy designed to optimise its asset portfolio and allocation of capital, and complements its plan for organic debt reductions.

Telefónica noted that the proposed agreement with KKR implies an enterprise value of Euro 3,678 million for Telxius, or 11.4 times its 2017 EBITDA, and confirms the valuation indicated for Telxius in the offering memorandum for its attempted initial public offering as announced in September, but subsequently withdrawn in November. At that time, the indicative price range for the same stake was between Euro 12 and 15 per share. The proposed transaction with KKR values Telxius's equity at Euro 3,188 million (Euro 12.75 a share).

The agreement includes the initial acquisition by KKR of 62 million of shares (24.8% of the total shares) of Telxius for a total of Euro 790 million, with the option to acquire and sell an additional 38 million shares (15.2% of the total shares) for a minimum of Euro 485 million. Such options are related to a call option, exercisable by KKR and a put option, exercisable by Telefónica upon maturity of the call option.

Telefónica stated that the closing of the transaction is subject to regulatory approvals and that the window to exercise these options is in the fourth quarter of 2017, provided the required regulatory approvals have been received.

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