Swiss telecoms company Sunrise's logo is seen at its headquarters in Opfikon, Switzerland February 6, 2019. Picture: REUTERS/ARND WIEGMANN
Swiss telecoms company Sunrise's logo is seen at its headquarters in Opfikon, Switzerland February 6, 2019. Picture: REUTERS/ARND WIEGMANN

London — Billionaire John Malone’s Liberty Global has agreed to buy Sunrise Communications in a deal that values the Swiss phone carrier at about Sf5bn ($5.4bn) and revives a combination that fell through in 2019.

The cable giant offered Sf110 per share, and Sunrise’s largest shareholder, Freenet, has agreed to sell its 24% stake, Liberty said in a statement on Wednesday. The offer is a 28% premium to Sunrise’s closing share price on Tuesday. Sunrise shares surged as much as 27% at the Swiss market open to Sf109.5.

The deal reverses a failed transaction from 2019, in which Liberty’s attempt to sell the company’s UPC Switzerland unit to Sunrise crumbled in the face of opposition from Freenet and influential proxy adviser Institutional Shareholder Services. Freenet is now on-side as a seller rather than a buyer.

Sunrise will be delisted upon the deal’s completion, but there’s a “very good chance” the combined entity will return to the Zurich stock exchange after the combination is completed, Liberty Global CEO Mike Fries said on a call with reporters. The CEO of the new company has not been agreed yet, he said.

Discounting war

The combination will merge Sunrise’s wireless network with UPC’s high-speed broadband network and video services to create a bigger challenger to the dominant player, Swisscom AG, and potentially ease pricing pressure and pool investment in the competitive market. Swiss carriers have been locked in an aggressive discounting war as they roll out the next generation of wireless and fixed networks.

“This powerful combination of 5G wireless and gigabit broadband will accelerate digital investment at a time when connectivity has never been more essential,” Fries said in the statement. “This transaction is another significant step on our path to create fixed-mobile champions in all of our core markets.”

The tender offer will begin later in August, and the deal is subject to regulatory approvals, Liberty said in its statement. Fries said he was confident, noting on a call with reporters that “this is basically the exact same deal that was approved unconditionally by the regulators last year”.

Sunrise and Freenet said in statements that their boards unanimously supported the offer. Freenet is in line to receive Sf1.22bn, some of which would go to pay down debt, leaving the rest for investing in the company or for potential shareholder handouts, according to the German telecommunications company’s statement.

European telecommunications transactions have been a rare bright spot for dealmakers in 2020 with spending up 9.1% to $37.1bn in 2020 so far, according to data compiled by Bloomberg. Malone and Fries are also working to complete the merger of Liberty Global’s Virgin Media with Telefonica’s UK wireless carrier O2.

Malone agreed in February 2019 to sell Liberty’s Swiss unit, which would have raised cash to support a range of activities, including potential shareholder payouts and acquisitions in Western Europe. The collapse in October of the deal, which valued UPC at $6.4bn, was a blow to the billionaire cable mogul after his attempted purchase of Millicom International Cellular SA fell apart on price concerns earlier that year.

Including debt, the deal values Sunrise at Sf6.8bn, and Liberty will fund it with Sf3.5bn of existing cash and will also issue new debt, which it says leaves it with $7bn of liquidity. At least two thirds of all Sunrise shares on a fully diluted basis must be tendered for the offer to go through.

Fries said it’s not easy to predict what other previous opponents such as proxy adviser ISS will say this time around, but “in our view it would be hard for them to not see the benefits here,” based on comparable transactions.

Sunrise’s previous CEO, Olaf Swantee, stepped down after the last deal fell apart. His replacement, Andre Krause, has been in the job for less than a year.

The company’s wireless network heavily relies on equipment from China’s Huawei Technologies. Operators and governments across Europe are being pressured to ban the gear by the White House, citing security concerns. Huawei has denied these claims.

When asked if he saw a risk in Sunrise’s reliance on Huawei and if he saw a need to diversify suppliers, Fries pointed out that Liberty was based in the UK, not the US.

“Swiss law is going to be what’s relevant for this particular outcome,” he said. “We have analysed multiple outcomes on the Huawei issue and none of them have changed our interest level.”


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