By Emma-Victoria Farr and Emma Pinedo
LONDON/MADRID (Reuters) -Spain's Cellnex said on Wednesday it was withdrawing its offer for a stake in Deutsche Telekom (OTC:DTEGY)'s towers business, paving the way for a competing bid from a consortium led by KKR to secure the estimated 18 billion euro ($18.02 billion) deal.
The sale process, which kicked off in March, has seen strategic bidders and infrastructure funds compete for a stake in the masts unit known as Deutsche Funkturm GmbH (DFMG).
Spain's Cellnex offered Deutsche Telekom a small stake in its business as part of a binding offer which was backed by Canada's Brookfield Asset Management.
KKR's rival offer, backed by U.S. investment firms Global Infrastructure Partners (GIP) and Stonepeak, allows Deutsche Telekom to retain control of its towers business, while giving KKR some corporate governance control.
The transaction would rank as Germany's biggest deal this year and Europe's second largest, after the Benetton family and U.S. fund Blackstone (NYSE:BX)'s 58 billion euro takeover of Italian infrastructure group Atlantia.
Deutsche Telekom wanted to retain some control of its towers business, meaning an industrial combination was not preferred, sources familiar with the process said.
Deutsche Telekom shares were down 1.7%, underperforming the German DAX. Cellnex shares were up 1.7%, while Spain's bluechip index Ibex-35 was in the red.
In an environment where interest rates are rising, Deutsche Telekom needs cash to cut a debt pile of almost 136 billion euros. This would free up funds to invest in infrastructure and secure control of its U.S. business T-Mobile, which accounts for more than 60% of group sales.
Many telecoms firms have carved out towers businesses, or launched joint ventures with independent companies, as a way to monetise part of the business and keep a chunk for future gains.
In an analyst note, Spain's Banco Sabadell said Cellnex could withstand not entering the German market as its business would still benefit from its ambitious expansion in Europe in recent years.
"Despite the fact that the tower business in Germany would have been a strategic fit for Cellnex and would trigger significant immediate growth for it … we believe that the company's growth for the coming years will be guaranteed with the latest purchases made," it said.
Deutsche Telekom worked with Goldman Sachs (NYSE:GS) as adviser in the sale of its 40,600 masts. Vodafone (NASDAQ:VOD)'s Frankfurt-listed towers business Vantage Towers, as well as American Tower (NYSE:AMT) had reportedly considered bids earlier in the auction process.
Deutsche Telekom, KKR and Goldman Sachs declined to comment.
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