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Sunrise at war with Freenet over Liberty Global deal

The battle between Swiss service provider Sunrise and its largest shareholder Freenet over the former’s plans to acquire UPC Switzerland has escalated, with Sunrise accusing Freenet board representatives of “a conflict of interest” and resolving to exclude them from discussions about the merger. Sunrise also asserted that Freenet had previously proposed an illegal acquisition of Freenet shares at the expense of minority investors.

Responding to Freenet’s announcement that it intended to vote against the acquisition by Sunrise of Liberty Global’s Swiss unit, Sunrise said that the concerns raised by the German service provider were “neither justified nor in the best interest of Sunrise and all its shareholders” and accused Freenet of being “guided by its own short-term financial constraints and self-serving objectives”.

Sunrise accused Freenet of “seeking to partly shift its heavy indebtedness onto Sunrise” by pushing for greater leverage for Sunrise to finance the acquisition.

Sunrise also upped the ante in its battle with the German operator by accusing it of requesting an “inappropriate and illegal” purchase of Freenet shares at a premium by either Sunrise or Liberty Global in exchange for it giving a green light to the deal during Sunrise’s final negotiations with Liberty Global. Such a deal would have been at the expense of other shareholders, the Swiss operator said.

Sunrise said it had offered to make changes in the capital structure of the acquisition to accommodate Freenet’s desire to reduce the size of the rights issue, but that his had been rejected by Freenet.

The Swiss operator said it had stated its openness to consider an increase in leverage to finance the acquisition, reducing the size of the proposed share rights issue by CHF1 billion (€920 million), but that this had been rejected by Freenet.

Sunrise also rejected Freenet’s push for Liberty Global to retain debt rather than transfer it to Sunrise as part of the deal as “opportunistic and inappropriate” in view of an increased expectation of synergies from the merger of the pair and the standalone value of UPC Switzerland.

Sunrise said it was assessing whether Freenet’s representatives on the Sunrise board had “breached their fiduciary duties, including their duty of confidentiality” and that it had resolved to exclude them from deliberations on the acquisition as a result of their “conflict of interest”.

“This decision has not been made lightly but is unavoidable given Freenet’s conduct,” Sunrise said.

Freenet, which holds a 24.5% stake in Sunrise, said last week that it would vote against Sunrise’s CHF4.1 billion capital increase to finance the CHF6.3 billion acqusition.

Sunrise meanwhile has posted Q2 revenues of CHF463 million, down 1.07%, and adjusted EBITDA of CHF150 million, up 10.3%. The operator saw its mobile post-paid, landline voice, internet and TV subscriber bases rise, with TV numbers up 14.8% to 229,000.

Pre-paid mobile customers declined by 13.9% to 687,000, while postpaid customers rose by 9.5% to 1.655 million. Broadband numbers were up 9.4% to 442,000.