In partnership with Amancio Ortega, the Spanish billionaire best known for owning the fashion retail brand Zara, Telefonica have today announced they are purchasing KKR’s 40% stake in Telxius
Telefonica spun off its infrastructure unit, Telxius, back in 2016, giving the unit control of what then amounted to around 16,000 telecoms towers in five countries and roughly 31,000km of submarine fibre optic cables.
With investors keen to take advantage of these valuable infrastructure asserts, Telefonica quickly announced that it would launch an initial public offering (IPO) for Telxius, looking to list up to 40% of the company, partly in an effort to reduce the operator’s debt of over €50 billion.
However, when share prices of between €12 and €15 were announced by Telefonica, thereby valuing Telxius between €3 and €3.75 billion, investors baulked, complaining that the valuation was much too high. As a result, the IPO was ultimately cancelled towards the end of 2016.
This opened the door for private investment, which quickly arrived in the form of US investment firm KKR, who beat rivals in the battle to purchase the available 40% of Telxius for €1.3 billion early the next year.
Two years later, in 2018, Telefonica announced that it had sold a 9.99% share of Telxius to Pontegadea, the investment company owned by billionaire Amancio Ortega, raising a further €379 million.
This left Telefonica narrowly in majority control of Telxius, holding 50.01% of the business via their joint venture with Pontegadea called Pontel, followed by KKR with a 40% stake, and the remaining 9.99% equity held by Pontegadea directly.
Now, Telefonica and Ortega have signalled their intent to repurchase the 40% from KKR via Pontel for a total of €216 million. The agreement will see Pontel’s stake in Telxius increase to 70%, while Pontegadea’s stake will rise to 30%.
As part of the agreement, Pontegadea will simultaneously raise its stake in Pontel from 9.99% to 30%.
As always, the stake acquisition is pending regulatory approval.
While €216 million may seem a far cry from the €1.3 billion KKR paid for its initial stake, in reality the investment firm has already had a significant return on investment; at the start of last year, Telxius sold its mobile infrastructure to American Towers for €7.7 billion.
With its mobile infrastructure sold, Texius’s remaining assets largely take the form of its submarine cable empire, spanning over 94,000km and including the Marea, Brusa, and Mistral systems.
While perhaps not so sought after as mobile towers, these submarine cables are still play an integral role in international communications and have attracted significant interest of their own. In summer last year, another US investment firm, EQT offered Telefonica €1.8 billion for the cables, though no deal was ultimately reached.
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