MADRID (Reuters) - Spain's Telefonica (>> Telefonica SA) said on Tuesday it had agreed to sell up to a 40 percent stake in its telecom masts subsidiary Telxius to private equity firm KKR (>> KKR & Co. L.P.) for 1.275 billion euros (1.08 billion pounds)

The sale would be seen as a small step in bringing down Telefonica's 50 billion-euro debt pile, but will help to show investors that last year's dividend cut, aimed at waiting for a more profitable asset sale, is paying off.

The accord includes a call option for 62 million Telxius shares - around 24.8 percent of Telxius - for 790.5 million euros and put options for 38 million shares - around 15.2 percent - for at least 484.5 million euros.

The operation gives an enterprise value for Telxius, including debt, of 3.678 billion euros, Telefonica said in a statement to the market regulator.

Telxius owns and operates a large portfolio of nearly 16,000 telecommunications towers in five countries and manages an international network with approximately 65,000 kilometers of submarine fibre optic cables.

The operation is subject to regulatory approval.

($1 = 0.9446 euros)

(Reporting by Paul Day; Editing by Emma Pinedo)

Stocks treated in this article : Telefonica SA, KKR & Co. L.P.