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Swiss telco Sunrise fights to save $6.4 billion Liberty deal

Swiss telco Sunrise fights to save $6.4 billion Liberty deal

ZURICH : Swiss telecoms firm Sunrise Communications on Thursday stepped up efforts to rescue its takeover of Liberty Global’s Swiss unit amid criticism from its top shareholder, saying it had found new synergies and could cut a planned rights issue to fund the deal.

However, Sunrise shares fell more than 6% as analysts picked out some weaknesses in its second-quarter results, such as a dip in mobile phone service revenue, just as it tries to close the biggest deal of its two-decade history.

German telecoms group Freenet , Sunrise’s largest investor, has called the all-cash 6.3 billion Swiss franc ($6.4 billion) takeover of UPC Switzerland unfavorable for Sunrise shareholders and has asked for the price to be cut and risks reallocated.

Criticizing Freenet’s opposition as “self-serving”, Sunrise touted updated expectations of 280 million francs in annual synergies from buying the Liberty business, 45 million more than previously forecast.

Freenet was not immediately available to comment.

Sunrise said these benefits, along with the improved performance of UPC since the deal was announced, would allow it to increase leverage and reduce the proposed 4.1 billion franc rights issue needed to pay for the deal by up to 1.5 billion francs.

Sunrise Chief Executive Olaf Swantee said Freenet had rejected that plan.

“Freenet is only interested in a short-term solution to sell as fast as possible at the best possible price to reduce their own debt problem,” Swantee told Reuters.

As relationships between the two sides enter a deep chill, Sunrise’s board announced it would bar Freenet from deliberations over the UPC deal.

One-off integration costs needed to achieve the higher synergies are expected to increase from 140-150 million to 230-250 million francs, Sunrise said.

Sunrise’s second-quarter net income rose to 27 million francs, from 24 million in the year-earlier period, the company said. Revenue fell 1.7% to 455 million francs, which Sunrise said resulted from lower mobile hardware and hubbing sales.

Jefferies analysts highlighted a dip in mobile service revenues and pressure from promotions as weaknesses, while praising the Swiss company’s cost control that is helping preserve profit margins in what has become a “tougher market”.

The shares were down 6.3% at 72.80 francs as of 1200 GMT, extending their fall this year to about 10%. The shares, while having rebounded from two-year lows earlier this year, are still well off their 2018 highs, when they flirted with 100 francs.

The UPC deal, which Sunrise aims to close at the end of November, awaits approval from Swiss competition regulators, followed by a shareholders’ vote on the rights issue.

STAKE DILUTION

Freenet’s vow to vote its 24.5% stake against the issue could stymie the takeover if other shareholders join the opposition.

Sunrise, whose pursuit of UPC comes amid European industry consolidation being driven by narrowing margins and mounting costs to launch faster 5G services, is hoping UPC will help to better compete in Switzerland with the country’s dominant communication provider, government-controlled Swisscom .

Freenet CEO Christoph Vilanek, meanwhile, has said UPC has resorted to heavy discounting to support its business.

Freenet has said it will not participate in the rights issue, meaning its Sunrise stake would be diluted. Vilanek is pursuing changes in the proposal he has said would “optimize its structure.”

Liberty, set up by U.S. cable pioneer John Malone, is selling off some assets. In December, it said it would sell its DTH satellite TV operations, which serves four eastern European markets, to M7 Group.

(Reporting by John Miller and Angelika Gruber in Zurich, Editing by Silke Koltrowitz and Mark Potter)