Sunrise bolsters case for UPC deal with new fairness opinion

Swiss telecom operator Sunrise has boosted its case in its battle with its biggest shareholder Freenet over the terms of its planned acquisition of cable operator UPC Switzerland from Liberty Global by receiving a favourable opinion on the fairness of the deal from ValueTrust Financial Advisors.

According to to Sunrise, ValueTrust reviewed the key performance indicators and financial projections of UPC Switzerland, its current trading as well as synergies emerging from the combination of UPC Switzerland and Sunrise.

The telco said that the ValueTrust analysis supports the financial terms of the transaction and standalone valuation of UPC Switzerland.

ValueTrust calculated that, adjusted for cost and capex run-rate synergies, the operating free cash flow multiple based on the acquisition value of CHF6.3 billion represents multiples of 10.2 for 2018 and 12.5 for 2019, which Sunrise says are below the current trading levels of key listed peers. The estimated synergy pay-away of less than 40% of the total synergy potential to Liberty Glboal is below recent pay-away precedents in the industry, according to the telco.

The Sunrise board previously received a fairness opinion from Morgan Stanley on the financial terms of thedeal.

Sunrise’s latest move to bolster its case comes as Reuters reported that additional shareholders in Sunrise are leaning towards joining Freenetin opposing the acquisition.

Reuters reported that two big investors will oppose the deal with Liberty Global, while a third has expressed reservations.

Hostilities between Sunrise and Freenet erupted two weeks ago with Sunrise accusing Freenet board representatives of “a conflict of interest” and resolving to exclude them from discussions about the merger after Freenet accused Sunrise of agreeing to pay too much for UPC Switzerland at a time when the cable business is under pressure.

The pair also disagreed over the allocation of risk associated with the deal. Freenet aid that Sunrise shareholders are being required to underwrite a UPC Switzerland turnaround and related integration risks, while paying away potential synergies of CHF1.3 billion (€1.2 billion) to Liberty Global in advance

Liberty Global meanwhile has rejected making any changes to its agreement with Sunrise for the sale of its Swiss unit following the eruption of hostilities between Sunrise and its biggest shareholder, Germany’s Freenet over the terms of the deal.

Noting the “recent statements” from the pair on the transaction, Liberty said that was “fully committed to completing the transaction as agreed”.