Telefónica, Spain’s largest wireless carrier and fixed broadband provider, and Pontegadea, the family office of the Ortega family, which is led by billionaire Amancio Ortega the founder of clothing retailer Zara, today announced that they will acquire private equity firm KKR’s 40% stake in Telxius Telecom, a provider of subsea cable infrastructure in Europe and the Americas. Post-transaction, Telefónica will increase its ownership of Telxius Telecom from 50.01% to 70%, while Pontegadea will enlarge its stake from 9.99% to 30%.
Telefónica and Pontegadea are acquiring KKR’s 40% stake in Telxius Telecom for €215.7m ($244m USD). However, the final payment is subject to adjustments resulting from a separate transaction – the €7.7bn ($9.4bn USD) sale of Telxius’ tower business to American Tower in 2021.
Telxius Telecom – Overview
Telxius Telecom owns an international network of high-capacity subsea fiber optic cables spanning 58.4k miles (94.0k kilometers). Through its Tier 1 IP network, Telxius provides direct connectivity to the internet with a coverage of 93 points-of-presence (PoPs) and 27 on-net cable landing stations in 23 countries (owned and third-party).
Telxius Telecom has ownership in an international network of subsea cables including the systems Marea, Brusa, Mistral, and SAm-1. Additionally, Telxius operates capacity / fiber pairs on third-party owned subsea cables such as Dunant (Google), Tannat (Google, ANTEL), and Junior (Google).
Telxius-Owned Subsea Cables
Marea is a trans-Atlantic subsea cable which spans 4.1k miles (6.6k kilometers), connecting Virginia Beach in the United States with Sopelana (near Bilbao), Spain. The subsea cable has a design capacity of 200 terabits per second (Tbps) across its 8 fiber pairs.
Overall, Telxius owns 50% of Marea, with the remainder held by Facebook (Meta) and Microsoft.
Brusa spans 6.8k miles (11.0k kilometers), connecting Virginia Beach in the United States with San Juan (Puerto Rico), Fortaleza (Brazil), and Rio de Janeiro (Brazil). The subsea cable has a design capacity of 160 terabits per second (Tbps) across its 8 fiber pairs.
Mistral spans 4.5k miles (7.3k kilometers), connecting Chile, Peru, Ecuador, and Guatemala. The subsea cable has a design capacity of 132 terabits per second (Tbps) across its 6 fiber pairs.
Overall, Telxius owns Mistral alongside Claro (América Móvil).
SAm-1 (South America-1) spans nearly 15.5k miles (25k kilometers), connecting Argentina, Brazil, Chile, Colombia, Dominican Republic, Ecuador, Guatemala, Peru, Puerto Rico, and the United States (Boca Raton, Florida). The subsea cable has a design capacity of 20 terabits per second (Tbps) across its 4 fiber pairs.
Telxius serves customers that require high-capacity and low-latency connectivity, including hyperscale customers (e.g., cloud service providers). For example, Amazon Web Services (AWS) signed an indefeasible right of use (IRU) agreement with Telxius for the use of one fiber pair on its Marea subsea cable.
For Q3 2021, Telefónica notes that Telxius’ overall traffic has increased by 14% year-over-year.
Transaction Structure – Telefónica and Pontegadea Buy KKR’s Telxius Stake
Presently, Telefónica’s subsidiary, Pontel Participaciones, S.L., a company which is held 83.35% by Telefónica and 16.65% by Pontegadea Inversiones, S.L., owns 60% of the share capital of Telxius Telecom, S.A. Through Pontel, Telefónica and Pontegadea have agreed with an entity managed by KKR, called Taurus Bidco S.à r.l., for the purchase of 40% of the share capital of Telxius Telecom held by Taurus. Specifically, this Taurus entity is managed by the $3.1bn KKR Global Infrastructure Investors II fund.
As a result of the transaction, Pontel, which currently holds 60% of the share capital of Telxius, will become the sole shareholder of this company. In turn, Telefónica will increase its holding in Pontel, thus indirectly in Telxius, to 70% and Pontegadea will hold a 30% stake.