By Andrés González
MADRID (Reuters) - Spain's Telefonica (MC:TEF) is in talks with private equity firms KKR (N:KKR), CVC (CVC.UL) and Ardian as well as sovereign fund GIC (GIC.UL) about the sale of a 49 percent stake in its telecom masts subsidiary Telxius, four sources said.
The sources familiar with the matter said Telefonica had hired HSBC (L:HSBA) as an advisor and while the talks could still fall through they were at a final stage and Telefonica wanted to reach a deal before March.
A successful sale would only be a small step in bringing down Telefonica's 50 billion euros (42 billion pounds) of debt, but it would go a long way in showing investors its strategy of cutting its dividend last year to wait for a better window to divest assets, rather than selling them cheaply, is paying off.
The move by the telecoms company follows several failed deals - including a cancelled Telxius initial public offering and the blocked sale of its British subsidiary O2 - as it tries to cut debt, recover financial muscle and boost its share price.
It would also be the clearest indication to date that Telefonica still sees value in owning network infrastructure and is not willing to follow some rivals who have abandoned control of their towers to become technology or content companies.
Two of the sources said a deal could even be announced before Telefonica releases full-year earnings on Feb. 23.
"The deal is going fast, faster than a non-binding and binding offers process. The idea of Telefonica is to close something shortly, even ahead of its results," said one of the sources, on condition of anonymity.
Telefonica, HSBC, KKR, CVC, and Ardian declined to comment. GIC did not immediately respond to a request for comment.
Some of the sources said GIC and CVC could make a joint offer while others said KKR could team up with Ardian, or that KKR, GIC and CVC could all bid together.
The funds are also asking Telefonica to enter into a shareholders pact as part of the sale so they can have a say in the management of the towers subsidiary, even if they do not acquire full control, the sources said.
The 49 percent stake is expected to fetch at least 1.47 billion euros based on the valuation of the failed initial public offering (IPO) of the telecom masts business in September.
Analysts and insiders believe the sale of the Telxius stake would pave the way for Telefonica to revive attempts to raise money from O2 UK, either through an IPO or the sale of a stake in the British telecoms company.