Liberty Global has reached a binding agreement to sell its Swiss subsidiary, UPC Switzerland, to Sunrise Communications Group, in a deal valuing the Swiss unit at CHF 6.3 billion.
As of end-2018, the UPC Switzerland network passed 2.3 million homes or around 60 percent of the total in Switzerland. The cable operator served 1.1 million customers who subscribed to 1.1 million video, 700,000 broadband and 520,000 voice services, and the group also operates its own sports TV channel. The company posted revenues for 2018 of CHF 1.296 billion, down 3.7 percent as it struggled to hold onto customers in the highly competitive Swiss market.
No 2 player
The combined UPC/Sunrise group will be the No 2 player in mobile, TV, fixed broadband and fixed voice in the Swiss market, creating a new fixed-mobile challenger to market leader Swisscom. Severina Pascu, CEO of UPC Switzerland, said the merger recognises the growing importance of converged fixed-mobile offers in the Swiss market. "The merger of the two companies will allow for increased investment and additional innovation for the benefit of Swiss retail and business customers."
Sunrise said it expects annual synergies from cost and capex savigns of around CHF 190 million within three years of closing the deal, equivalent to a total net value of CHF 2.4 billion. It sees potential for further growth through cross-selling opportunities and scale, resulting in revenue synergies with an annual run-rate of around CHF 45 million by the fourth full year of the merger.
The takeover values UPC Switzerland at 8.9x adjusted EBITDA for 2018, after including the projected synergies, or 9.9x without the synergies. Sunrise said the deal offers an attractive multiple compared to other recent transactions in the European convergence market and the company should add to equity free cash flow per share from the first year, after adjusting for synergies and integration costs. The company also reiterated its target to grow the dividend per share by 4-6 percent over the period 2018-20.
Rights issue
Sunrise will take on UPC's debt of CHF 3.6 billion as part of the acquisition. The company plans a rights issue to raise around CHF 4.1 billion in order to pay the remaining CHF 2.7 billion in cash for the acquisition price, as well as pay off CHF 1.1 billion of its existing debt. This should leave it with net debt at around 3.0x EBITDA, or 2.7x when counting the projected cost synergies from the takeover.
Closing of the takeover depends on approval from Sunrise shareholders for the rights issue as well as regulatory approval, which is expected in Q2 or Q3. The companies aim to complete the deal in the second half of 2019.
Liberty Global said it expects net cash proceeds of CHF 2.6 billion from the deal, after adjusting for debt. In addition, it will provide Sunrise with certain transitional services for a period of up to five years following completion. These include network and IT-related functions, with the annual charge for the services depending on the actual level of services required.
