Investors scupper Sunrise expansion plans

Sunrise has cancelled an Extraordinary General Meeting (EGM) to secure acquisition funds to acquire UPC Switzerland after investors rejected the move.

Announced back in February, Liberty Global proudly proclaimed it had offloaded its Swiss business unit, UPC Switzerland, for $6.3 billion. At the time, the acquisition looked expensive, and it now appears the investors aren’t prepared to foot the bill.

“We regret cancelling the EGM,” said Peter Kurer, Chairman of the Board of Directors of Sunrise.

“We have spent a significant amount of time engaging with our shareholders and continue to believe in the compelling strategic and financial rationale of the acquisition.”

To fund the acquisition, Sunrise was attempting to force through a 2.8 billion franc rights issue, though this was opposed by Freenet, Sunrise’s biggest shareholder, as well as several other investors. With the opposition from such weighty investors, the writing was clearly on the wall for the Sunrise management team.

While the deal had already received regulatory approval, the usual stumbling block for consolidation in smaller markets, all the opposition arguments come back to the price of the acquisition.

For Sunrise, this was supposed to be a deal which would allow it to compete on a more level footing with market leader Swisscom. With UPC Switzerland introduced to the mix, Sunrise would have inherited mobile subscribers to boost market share, but also a fixed business unit which passes more than 50% of homes across Switzerland.

Theoretically, the inclusion of such assets would have enabled the business to create an attractive convergence model to challenge the leadership position of Swisscom, but it was too expensive.

Just to put things into perspective, the current market capitalisation of Sunrise is roughly $3.57 billion, less than half of the value of the acquisition. This is not necessarily unusual, though when you look at what is being acquired the numbers start to look a bit suspect.

UPC Switzerland has passed just over 2.35 million homes with its fixed network, roughly 50% of the country’s total households. It has 1.07 million broadband subscribers, and 1.04 million video customers, 599,400 of which are premium. The mobile business currently has 173,400 subscribers.

In the three-months ending June 30, revenues at UPC Switzerland stood at $315 million, a year-on-year decrease of 5.2%. The revenue dip was attributed to poor performance in the fixed business unit, though this might be down to decreased marketing activity as management team cast its eye towards the Sunrise transaction; it isn’t necessarily a dip to read into too much.

Investors clearly do not believe these numbers justify a cheque worth $6.3 billion. Just to put it into context, BT acquired EE for £12.5 billion in 2016 and inherited 30 million mobile subscribers at a very similar ARPU.

For Liberty Global, this would seem to be back to the drawing board. The team is attempting to reduce exposure in Europe, refocusing attention on South America, and this will be a disappointing outcome.