October 10, 2019 / 8:53 AM / 11 days ago

Sunrise's UPC deal too expensive, says advisory group ISS

ZURICH (Reuters) - Proxy adviser ISS recommended shareholders vote against a rights issue that will allow Sunrise Communications (SRCG.S) to finance a 6.3 billion Swiss franc ($6.35 billion) purchase of cable operator UPC from Liberty Global (LBTYA.O), in a report sent to clients on Thursday.

Swiss telecom company Sunrise's logo is seen at a shop in Zurich, Switzerland October 10, 2019. REEUTERS/Arnd Wiegmann

Opposition to the deal has been growing, with a Reuters survey showing owners of at least 30% of Sunrise shares, including German group Freenet (FNTGn.DE), are set to reject a 2.8 billion Swiss franc equity issue at an extraordinary shareholder meeting on Oct. 23.

Sunrise needs a simple majority to back the equity issue, which has been scaled back from 4.1 billion Swiss francs, although the debt component has risen.

“On balance, Sunrise appears to be overpaying for assets in a transaction that appears to have debatable long-term strategic merit. As such, shareholders are recommended to vote against the transaction at this time,” ISS said in a document seen by Reuters.

“Our valuation analysis suggests a fair value range of 4.6 - 5.2 billion Swiss francs (enterprise value) for UPC on a standalone basis if its performance were in line with that of peer cable operators,” ISS said, adding that operational difficulties including declining revenues made the 6.3 billion franc consideration appear excessive.

Sunrise shares were up 2.3% at 1222 GMT.

Activist investor AOC welcomed ISS’s recommendation. “It confirms our view. It increases the likelihood that the bad deal will fall through,” a spokesman for AOC, which holds a stake of under 3% in Sunrise, said.

Berenberg analyst Usman Ghazi said approval of the deal looked more unlikely now. “The ball seems to be in Liberty’s court if they want to save the deal,” he said, adding it was not usually Liberty’s style to back down from their negotiation position.

Liberty Global did not return requests for comment.

A Sunrise spokeswoman said the company was examining the details of ISS’s recommendation and would comment in due course.

Proxy adviser ISS said it saw “seemingly limited downside risk for Sunrise shares in rejecting the deal”, but shareholders would have to bear the cost of the break-up fee payable in that case.

ISS is planning to send out the recommendation to the media on Friday.

Reporting by Oliver Hirt and Angelika Gruber; writing by Silke Koltrowitz; editing by Brenna Hughes Neghaiwi and Elaine Hardcastle

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