German operator group Deutsche Telekom has agreed to sell a 51% stake in its towers business to DigitalBridge and Brookfield in a deal that values the asset at €17.5 billion.

We knew the deal was coming and at roughly what price, but the identity of the winning bidders ended up being something of a surprise.

DigitalBridge and Brookfield were reported to have been backing a takeover bid from Spain-based passive infrastructure specialist Cellnex. But when Cellnex formally announced that it was out of the running earlier this week, we all assumed that meant its backers were out too. Indeed, Reuters reported that Cellnex’s decision had left the way open for a rival bid from KKR and partners.

But it seems Deutsche Telekom got the partnership it was looking for from DigitalBridge and Brookfield. And essentially what Deutsche Telekom was looking for was a way to cash in on the value of towers assets, while still keeping a position in that side of the market that would enable it to capitalise on its growth potential.

The value of the deal represents a 27x earnings multiple, which is in the same ballpark as we have seen elsewhere in Europe of late. It’s slightly lower than the 33.8x deal Spark New Zealand announced earlier this week when it sold 70% of its towers business for NZ$900 million. But that’s a different market and a very different scale. Deutsche Telekom’s GD Towers business, which comprises its Deutsche Funkturm unit in Germany and a similar business in Austria, boasts more than 40,000 sites, while Spark’s TowerCo has just 1,263.

Under the terms of the deal, Deutsche Telekom will retain a 49% stake in GD Towers, which comes with, in its own words, “significant minority protection rights.” These include the right to appoint two of the five shareholder committee members, including the initial chairman, and the right to regain control and reconsolidate GD Towers in the future.

Deutsche Telekom estimates that it will receive cash proceeds of €10.7 billion, which it will use to pay down debt and speed up its plans to raise its stake in T-Mobile US to 50.1%.

“We crystalize the value of our tower assets, thereby creating value for our shareholders,” said Tim Höttges, CEO of Deutsche Telekom. “At the same time the deal allows us to continue improving Deutsche Telekom’s undisputed network leadership in Germany and benefit from further value upside of the towers business through our retained 49 percent stake.”

To put it another way, the deal represents the best of both worlds for the German incumbent.

But while there is undoubtedly significant opportunity in the towers space in Germany, thanks to the rollout of 5G networks and the relatively recent arrival of a new MNO, there is also some serious competition.

Vodafone’s Vantage Towers highlighted the German market as a key growth area in late 2020, indicating its intention to capitalise on its relatively low tower tenancy rate. It later brokered a deal with aforementioned new MNO 1&1.

But keeping a significant stake in GD Towers is not just about capturing the growth opportunity. As Kester Mann, Director, Consumer and Connectivity at CCS Insight, points out, “Deutsche Telekom still retains a tight hold on an asset it sees as strategically important, meaning it retains influence on important decisions such as when and where mobile towers should be deployed.”

Deutsche Telekom expects to close the deal towards the end of the year, subject to the usual regulatory approvals. The latter shouldn’t be too much of a problem, given that this deal is about bringing in investors rather than selling to another towers company.

Therefore, it’s pretty safe to say that this draws a line under the last few months of relentless speculation over the future of Deutsche Telekom’s towers business. But the broader towers rumour mill will not stop here.

“Attention now turns to what’s next for other European towers units such as Orange’s Totem and specialists like Cellnex,” Mann notes. “With the industry keen to capitalise on continued high levels of investor interest in passive infrastructure, further deals are likely just around the corner.”

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