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Telefonica sells Telxius stake to KKR

Telefonica said its net profit fell close to 14 percent last year to 2.36 billion euros

Heavily indebted Spanish telecoms giant Telefonica said Tuesday it has agreed to sell up to 40 percent of its infrastructure unit Telxius to US investment fund KKR for 1.27 billion euros ($1.35 billion).

The company in September 2016 scrapped at the last minute a planned flotation of the unit-- part of a plan to reduce its debt burden -- after it failed to attract enough demand for the share sale.

Telefonica said it would keep a majority stake and operational control of Telxius, which operates telecoms towers and undersea fibre optic cables, and would continue to consolidate it into its accounts.

"The combination of Telefonica's industrial expertise and KKR's financial and operational support will help Telxius as it continues to scale and grow," KKR's head of Spain, Jesus Olmos, said in a Telefonica statement.

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Under the agreement Telefonica will sell a 24.8 percent stake of Telxius to KKR for 790 million euros.

The US investment fund will have the option to buy an additional 15.2 percent stake in Telxius for at least 485 million euros.

The transaction values Telxius at 3.2 billion euros or 12.75 euros per share.

Telefonica has asked for 12-15 euros per Telxius when it tried to float the unit last year but the offers it received at the time were lower than this range.

"This seems to us to be the most logical outcome given the great difficulties in finding investors for the subsidiary in the past, combined with Telefonica's refusal to sell it at any price," Bankinter said in a research note.

Telefonica, one of the world's biggest telecoms groups, had a debt pile of 49.9 billion euros at the end of October.

As such, it is on the hunt for cash and it is also considering a possible listing of its British unit O2, after the European Commission blocked its sale to Hong Kong group Hutchison Whampoa over fears of the impact on prices for consumers.

Telxius manages 16,000 telecoms towers in five countries as well as 65,000 kilometres (40,000 miles) of submarine fibre optic cables.