Telefónica, a global wireless carrier, and Caisse de dépôt et placement du Québec (CDPQ), a Canadian pension fund, today announced an agreement for the construction and operation of a neutral and independent wholesale fiber network in Brazil, with the creation of FiBrasil Infraestrutura e Fibra Ótica SA (FiBrasil). Telefônica Brasil will contribute an existing network with 1.6 million homes passed with fiber and through Vivo, will be the anchor tenant of FiBrasil.

Telefónica and CDPQ will each hold a 50% interest in FiBrasil. Specifically, Telefónica’s 50% interest will be held through Telefônica Brasil (Vivo) with 25% and Telefónica Infra, its infrastructure arm, with 25%. Indeed, the implied valuation of the brownfield assets contributed by Telefônica Brasil equates to a multiple of 16.5x EBITDA. Finally, the transaction will close in the second quarter of 2021.

Wholesale Fiber Network in Brazil – Telefónica and CDPQ form FiBrasil

FiBrasil will operate as a neutral wholesale fiber company, with Vivo as the anchor tenant. In terms of business plan, FiBrasil will deploy and operate fiber optic networks in mid-sized cities across Brazil, outside the state of São Paulo. Indeed, Telefônica Brasil considers that focusing on mid-sized cities in Brazil is optimal, as these markets remain largely unpenetrated with fiber.

Additionally, FiBrasil will offer fiber-to-the-home (FTTH) wholesale access to all telecommunications service providers in Brazil. For example, this wholesale access will be offered to carriers including Claro (owned by América Móvil), TIM (owned by Telecom Italia), and Oi S.A., which is in the process of being acquired. In turn, these carriers will be able to offer FiBrasil’s fiber services to their end customers. At the same time, this arrangement will allow FiBrasil to capture value by leveraging the lease-up potential of third-party tenants.

Digital Infrastructure

Initially, FiBrasil will have a portfolio of 1.6 million homes passed which Telefônica Brasil contributes. Subsequently, FiBrasil will expand its network to reach 5.5 million homes passed within 4 years. FiBrasil will become a leading operator in the Brazilian fiber space, with Telefónica deploying and operating the fiber networks.

Overall, Telefônica Brasil is taking a capital expenditure-light approach for its future digital infrastructure needs. Indeed, Vivo will manage the relationship with its customers and compensate FiBrasil for the use of its fiber network. Moreover, CDPQ is helping to fund the future digital infrastructure needs of Telefônica Brasil by contributing to the incremental 3.9 million homes passed fiber build costs.

Transaction Structure – Telefónica and CDPQ form FiBrasil

CDPQ is investing a total of up to R$1.8bn ($321m U.S. dollars) in this joint venture. Specifically, this comprises both its initial 50% ownership purchase and follow-on investments for future fiber deployments. CDPQ’s capital contributions and forthcoming debt raise by FiBrasil will fully fund the fiber build for an incremental 3.9 million homes passed with fiber.

Caisse de dépôt et placement du Québec (CDPQ) – Overview

CDPQ is one of the world’s largest global institutional investors in infrastructure. Specifically, the pension fund has net assets of $30bn Canadian dollars ($23.7bn U.S. dollars), in this sector.

Importantly, CDPQ has infrastructure investing experience in Brazil from its 31.5% stake purchase of Transportadora Associada de Gás (TAG). TAG is Brazil’s largest natural gas transportation company, which CDPQ announced an investment in, during April 2019.

Additionally, CDPQ also has investments in digital infrastructure. Specifically, CDPQ acquired a 30% interest in U.S. tower company Vertical Bridge, in April 2019.

Fiber – Precedent M&A Transactions

Today’s announcement with CDPQ, closely follows a similar transaction which Telefónica announced with KKR, in February 2021, for its fiber optic network in Chile. Specifically, KKR is acquiring a 60% stake in Telefónica’s existing Chile fiber optic network, at a $1bn U.S. dollar valuation. Indeed, this implies a valuation multiple of 18.4x EBITDA for Telefónica’s Chile InfraCo business.

Additionally, a fiber-to-the-home transaction in Brazil, was announced in November 2020. Specifically, Bordeaux Investment Fund, backed by Nelson Tanure, acquired Copel Telecom from COPEL, a Brazilian utility company. In terms of valuation, Copel Telecom’s sale was for $448m U.S. dollars, equating to a multiple of 12.0x EBITDA.

For further comparable transactions, check out our comprehensive list of fiber precedent M&A transactions here.

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