Showdown at Sunrise AGM over billion-euro purchase of UPC

Sunrise wants to put CHF 6.3 billion on the table for the purchase of Switzerland's largest cable network operator (Werbewoche.ch reported). The aim is to get closer to industry leader Swisscom. A capital increase of up to CHF 2.8 billion is planned to finance the largest takeover in the local telecommunications market, which requires shareholder approval.

Here, an ice-cold headwind is blowing in the face of Sunrise's top management. Leading the resistance is Sunrise's largest shareholder, Freenet (Werbewoche.ch reported). The German company, which owns 24.5 percent of Sunrise, switched to opposition in August after initial skepticism about the deal. Freenet CEO Christoph Vilanek criticized the purchase price and the necessary capital increase as too high. He also says the structure of the deal is disadvantageous for Sunrise shareholders.

In addition, he no longer sees the strategic sense of the acquisition. Because of the new 5G mobile communications generation, the purchase of the UPC cable network for so much money is not worthwhile. Spending CHF 6.3 billion on it is "insane," Vilanek said in an interview with the AWP news agency.

The activist shareholder Active Ownership Capital (AOC) sounded the same horn. Unexpectedly, influential proxy advisor ISS joined the "no" camp, which according to the Reuters news agency accounted for more than 30 percent of the vote. Sunrise accused ISS of making "fundamental errors" in its analysis, which is why its recommendations were misleading.

Deal on a knife edge

On the other hand, a number of weighty shareholders such as Canada Pension Plan Investment Board (CPPIB) have also backed the deal. Voting advisors Glass Lewis as well as the Swiss Ethos and zRating also support the deal.

Nevertheless, the billion-euro purchase is on a knife edge. Sunrise needs the approval of more than half of the votes cast at the AGM to be able to carry out the capital increase. That could be tight if Freenet and other shareholders vote against, because all shareholders are never represented at an AGM. In recent years, participation has been between 62 and 67 percent.

However, Sunrise CFO André Krause expects a higher attendance next Wednesday. The Group has made a huge effort to mobilize as many shareholders as possible (Werbewoche.ch reported). Even newspapers ran full-page advertisements for it.

Concessions made

In order to get as many yes votes as possible, Sunrise has already made concessions. The capital increase was reduced to 2.8 billion francs. Originally, it was even worth 4.1 billion francs, which would have exceeded Sunrise's stock market value.

In addition, UPC seller Liberty Global agreed at the beginning of the week to support the capital increase with an amount of up to CHF 500 million at the last minute. If the capital increase goes through, Liberty Global would then own up to 7.8 percent of Sunrise.

Sunrise CEO Olaf Swantee assessed this as a strong signal from Liberty, expressing: "We believe in the merger, the cable network technology and the company." He added that this would facilitate the capital increase by 18 percent.

5G cannot replace cable network

Swantee also defended the purchase plans in terms of content: Swantee rejected as "absurd" the opponents' argument that the new mobile communications generation 5G could replace UPC's cable network. 5G could replace the slow Internet technology ADSL, but not a cable network that delivers speeds of up to 1 gigabit per second (Gbit/s).

"If we want to cover every home with 5G, we probably need three times as many antenna sites. We won't be able to do that in Switzerland. We even struggle to put up 20 or 30 new antennas in this country every year," said the Sunrise boss.

Tension rises

Despite the concession, Swantee admitted in an interview to being nervous about the vote. He declined to say how many votes Sunrise had behind it. It is difficult to make a prediction at the moment, he said.

If the deal is rejected at the AGM, Sunrise Chairman Peter Kurer fears a destabilization of the company. Employees would be demotivated. There are likely to be personnel consequences.

"In my case, these are simple: I would be voted out," Kurer had said in an interview. Based on his experience, however, he does not rule out that a "no" vote could result in further departures.

Sunrise CEO Swantee was coy about the question of whether he would then take his hat off: "These are not my priority considerations at the moment. Now it's about Sunrise. I'm not worried about my own job right now."

Major shareholder Axxion has already submitted a motion to vote Kurer and board member Jens Jesper Ovesen out of office at the AGM. (SDA)