Sunrise buries UPC deal - UPC parent keeps a back door open

It became very clear in October that the majority of Sunrise shareholders were not behind the capital increase to finance the CHF 6.3 billion acquisition of UPC, said Sunrise CEO Olaf Swantee on Wednesday. For this reason, Sunrise had called off the extraordinary general meeting required to finance the purchase at the last minute on October 22.

And now comes the next step: "Last night we terminated the purchase agreement," said Swantee: "The deal proposed by management to our shareholders is dead. It no longer exists." This means that yet another attempt to form a stronger challenger to industry leader Swisscom in the Swiss telecoms market has failed. Nine years ago, the Swiss Federal Competition Commission (ComCo) prohibited the planned merger of Sunrise and Orange on competition grounds. However, the cartel watchdog had no objections to Sunrise's acquisition of UPC.

Liberty leaves the door open

Liberty Global regretted the termination of the purchase agreement in a statement on Wednesday night. However, the UPC parent company is hoping for a new deal for its Swiss cable network subsidiary. "We look forward to continuing our discussions with the Sunrise Board of Directors or Sunrise's major shareholder Freenet about a potential transaction," said Liberty CEO Mike Fries. Such a takeover would bring considerable added value to shareholders and Swiss consumers. However, the head of the world's largest cable network group would have to convince the major German Sunrise shareholder Freenet, which holds around a quarter of the second-largest Swiss telecoms provider, to do so. Freenet was at the forefront of the opposition to the UPC purchase. Company boss Christoph Vilanek criticized the purchase price and the necessary capital increase of CHF 2.8 billion as being too high. The structure of the deal was also disadvantageous for Sunrise shareholders.

In addition, he no longer saw the strategic sense of the takeover. Because of the new 5G generation of mobile communications, it was not worth buying the UPC cable network for so much money. Spending CHF 6.3 billion on it was "madness", Vilanek explained.

It remains to be seen how Liberty intends to bring about a change of opinion at Freenet. No statements have yet been available from either company. "We are looking at value enhancement opportunities for our shareholders if they come to our table," said Sunrise CFO André Krause: "But at the moment this is hypothetical and speculative."

Sunrise focuses on going it alone

Sunrise's top management is now concentrating on going it alone. "It's all about Sunrise now. We are focusing on our plan for 2020," said CEO Swantee. The results for the third quarter show that Sunrise is making good progress.

But certain adjustments need to be made to the strategy of going it alone. "In an increasingly competitive environment, we need to consider where we need to improve and where we need to invest further," said Swantee.

When asked about the possible departure of Chairman of the Board of Directors Peter Kurer following the failure of the deal with UPC, Swantee said: "Kurer is a very strong Chairman of the Board of Directors. Under his leadership and the leadership of the management, we have managed to position Sunrise extremely strongly in the Swiss market. We are gaining market share quarter after quarter. The management will continue to support Peter Kurer," said Swantee.

Meanwhile, business at Sunrise is running smoothly, even though the management had been busy with the UPC purchase for months. Despite the steep one-off costs of 120 to 125 million Swiss francs for breaking off the deal, the cash registers were ringing in the summer.

In the first nine months, Sunrise was able to increase its operating profit before depreciation and amortization (EBITDA) by a good three percent. Net profit even shot up by more than half. However, only CHF 27 million of the one-off costs are included in the accounts. (SDA/AWP)