Cellnex offers stake to Deutsche Telekom as part of towers bid -sources

By Andres Gonzalez, Pamela Barbaglia and Emma-Victoria Farr

LONDON (Reuters) -Spain's Cellnex has offered Deutsche Telekom a small stake in its business as part of efforts to take control of the German firm's towers unit in a deal worth about 18 billion euros ($18.8 billion), sources told Reuters.

Cellnex, Europe's largest mobile phone tower operator, recently submitted a binding offer for Deutsche Funkturm GmbH (DFMG), Deutsche Telekom's towers business, four sources close to the matter said on condition of anonymity.

The bid plan, backed by Canada's Brookfield Asset Management, would also allow Deutsche Telekom to retain a minority stake in DFMG, one of the sources said.

Meanwhile, Vodafone has dropped out of the auction after initially seeking a strategic combination of its Frankfurt-listed towers business, Vantage Towers, with DFMG, said a separate source familiar with Vodafone's strategy.

A Vodafone spokesperson said the company was "exploring its own options" to achieve the objectives for Vantage that were set out in May "including discussions with potential industrial partners."

Cellnex, Deutsche Telekom and Vantage Towers declined to comment. A Brookfield representative was not immediately available for comment.

Germany is a key European market for Cellnex, which manages a portfolio of 137,000 tower sites in Spain, Italy, the Netherlands, France and Austria, among other countries.

By offering a stake of less than 10% in Cellnex - which has a market value of 25 billion euros – the Spanish company is seeking to counter a rival proposal from a KKR-led consortium.

The KKR group would allow Deutsche Telekom to retain control of its towers business, the sources said.

But the KKR proposal, backed by U.S. investment firms Global Infrastructure Partners (GIP) and Stonepeak, would still give the U.S. buyout fund some form of control over the company's corporate governance, meaning Deutsche Telekom would need to compromise on key strategic decisions over its mobile towers' business, the sources said.

KKR declined to comment, while GIP and Stonepeak were not immediately available.

DEAL BLUEPRINT

Deutsche Telekom, advised by Goldman Sachs, is expected to select the winner ahead of its second quarter results on Aug. 11, the sources said.

Cellnex's alliance with Brookfield would give the Spanish firm enough funding to avert a capital hike, which is expected to unnerve investors after its stock lost more than 18% since unveiling plans for a 7 billion euro rights issue last year, the sources said.

Cellnex's bid for DFMG comes after the Spanish firm secured British regulatory approval earlier this year to buy CK Hutchison's towers assets, provided it sells at least 1,000 mobile phone towers in Britain.

The CK tower deal, which is expected to close in the second half of the year, is serving as a blueprint for the Deutsche Telekom one, as CK has been offered about 5% of Cellnex as part of the transaction.

Last year, Deutsche Telekom and Cellnex signed a deal to combine their tower businesses in the Netherlands and set up a joint fund to invest in digital infrastructure. The Dutch deal saw Cellnex controlling 62% of the combined entity while Deutsche Telekom took 38% through the fund.

($1 = 0.9599 euros)

(Reporting by Andres Gonzalez, Pamela Barbaglia and Emma-Victoria FarrAdditional reporting by Nadine Schimroszik and Paul SandleEditing by David Goodman and Mark Potter)