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* Telefonica sells Czech unit to PPF for 2.47 bln euros
* Deal will cut Telefonica's debt, free up capital
* PPF wins major deal ahead of Czech 4G auction
By Julien Toyer
MADRID, Nov 5 (Reuters) - Telefonica has agreed tosell its Czech business for 2.47 billion euros ($3.3 billion),it said on Tuesday, the latest disposal for the Spanish groupaimed at cutting debt and leaving it to focus on its Italian andBrazilian interests.
Telefonica is selling a 65.9 percent stake in TelefonicaCzech Republic at 305.60 crowns a share to investmentgroup PPF, owned by Petr Kellner, the Czech Republic's richestman and ranked at 106 in Forbes' list of the world's wealthiestpeople.
Shares in Telefonica Czech Republic were down 2.5 percent at304.20 crowns by 1242 GMT, with analysts saying PPF might tryand buy out minority shareholders and de-list the shares.
Telefonica said it will remain a commercial partner in theCzech business for four years and still holds a 4.9 percentstake.
It will receive 2.06 billion euros in cash when thetransaction is closed and the remaining 404 million euros willbe paid over the next four years. A 260 million-euro dividendwill also be paid to Telefonica by the Czech unit on Nov. 11.
The Spanish group said the deal will help it cut its debt by2.69 billion euros but it will require a 56 million-euro chargeto earnings in the third quarter.
Telefonica aims to reduce its debts to under 47 billioneuros by year-end from 49.8 billion at mid-year, and has sold anumber of assets this year, including its Irish unit O2 for over$1 billion.
STRATEGIC MOVES
Analysts have said that Telefonica's sales of non-coreassets will also free up capital for other deals, such as itsproposed takeover of Telecom Italia investment vehicleTelco, that holds a controlling stake in the Italian group. Thisin turn could lead to an eventual break-up of the Italiancompany's Brazilian business, Tim Participacoes,which is a rival to Telefonica Brasil.
Telecom Italia's management board is due to meet on Thursdayfor the first time since Telefonica agreed in September togradually take over Telco, which is currently owned byTelefonica and a consortium of Italian banking and insurancecompanies..
"This (Czech) transaction reduces Telefonica's debt andleaves them flexible to participate in Brazilian consolidationand further investments in Europe," said Bernstein analyst RobinBienenstock in a note to clients.
CZECH BATTLE
PPF will finance the deal through 1.4 billion euros worth ofcash and a syndicated loan led by Societe Generale. Itwill also launch a mandatory tender offer for remainingTelefonica Czech Republic shares.
J&T Banka analyst Milan Vanicek said PPF would likely try tobuy out minority shareholders in Telefonica Czech Republic andde-list the shares.
"(PPF can receive) nice cash flows, improve the efficiencyof the company and potentially sell to other investors, whichmight be someone from China or Russia as PPF is interested inthose countries," he said.
Telefonica Czech Republic posted a 23.5 percent decline inthird-quarter net profit on Tuesday, to 1.35 billion crowns ($71million). The company has been battling growing competition withDeutsche Telekom's T-Mobile and Vodafone,including a price war launched this year, eating into revenue infixed-line and mobile services.
PPF had been looking for its next big deal after it agreedin January to sell out its 49 percent stake in an insurancejoint venture with Italy's Generali for 2.5 billioneuros.
With an estimated net worth of over $10 billion, Kellner gothis start selling office supplies in the early 1990s beforecreating his investment fund that was able to buy the country'slargest insurer Ceska Pojistovna in 1996.
PPF now owns assets worth 22.1 billion euros in banking,real estate, energy, mining and retail, reaching markets incentral and eastern Europe to Russia and Asia.
PPF had wanted to enter the telecoms market but balked inSeptember at joining an auction of radio frequencies for 4Gwireless broadband networks, raising speculation it wanted tobuy an existing operator.
