German operator Freenet announced it will vote against Sunrise's planned share issue to finance the takeover of UPC Switzerland. Freenet is the largest shareholder in Sunrise with a 24.5 percent stake. An EGM is planned for this autumn to vote on the CHF 4.1 billion rights issue.
Freenet has expressed doubts about the takeover since it was first announced in February. The company said in a statement that it found the price too high and UPC's owner Liberty Global was not bearing enough of the risk of turning around the struggling cable operator. UPC's latest results for Q2 underline the "severe pressure" in the cable market and weak operational performance, Freenet said. "For a fair transaction for all Sunrise shareholders, the purchase price should be lowered," it added.
Furthermore, the price allows Liberty Global to profit already from the expected synergies of merging Sunrise and UPC. The potential synergies of CHF 1.3 billion "are being paid away to Liberty Global in advance", without the company helping to realise the integration, Freenet said. "For a fair transaction for all Sunrise shareholders, Liberty Global should become a shareholder of the combined entity and receive a lower portion of the potential synergies," the German operator said.
To help reduce the risk and increase Liberty Global's participation, Freenet called for a stock element in the purchase price, rather than an all-cash transaction. The company could also use more debt for financing the deal, as the current rights issue is worth more than 100 percent of Sunrise's market cap. To ensure the company is not over-leveraged, Liberty Global should retain the UPC bonds after the sale, Freenet said.
Freenet said the unfavourable terms were reflected in the fall in in Sunrise's share price since the takeover was announced It added that Sunrise should be able to secure better terms, given its "excellent positioning and outstanding prospects standalone as evidenced by its consistent outperformance of its peers since IPO".
The company's concerns have been communicated to Sunrise's board, and Freenet said it already voted against the takeover when it first came before the board.
Strategic rationale
Sunrise acknowledged Freenet's position in a statement, saying it "remains convinced that the acquisition of UPC Switzerland creates a stronger and more valuable Sunrise, benefitting from a compelling strategic rationale". Sunrise added that the quarterly results of UPC "are in line with the turnaround plan of Liberty Global and even slightly ahead of expectations".
The company plans to provide a further update on the proposed acquisition when it announces Q2 results on 22 August.
