ZURICH (Reuters) - Sunrise Communications’ (SRCG.S) planned 6.3 billion Swiss franc ($6.30 billion) takeover of cable operator UPC from Liberty Global is going down to the wire, with several investors set to oppose the deal despite a revamped rights issue, they told Reuters.
Sunrise needs a simple majority to back a 2.8 billion franc equity issue — down from the 4.1 billion originally planned, although the debt component will rise — at an extraordinary meeting on Oct. 23 for the transaction to proceed.
A Reuters survey of shareholders showed owners of at least 30% of the voting rights would vote against the rights issue.
Given that turnout at shareholder meetings is typically well below 100%, opponents of the rights issue hope to block the deal with less than half of the voting rights.
At Sunrise’s regular annual meeting, owners holding just under 62% of the voting capital attended.
“We believe the transaction is on the brink,” one top ten investor said on condition of anonymity. Sunrise wants to acquire UPC Switzerland from Liberty Global (LBTYA.O) to gain market share and narrow the gap to market leader Swisscom (SCMN.S) with bundled services for mobile communications, broadband internet, TV and fixed-line networks.
German group Freenet (FNTGn.DE), Sunrise’s single biggest investor with a stake of 24.5%, has said it will oppose the deal. Two of the ten largest shareholders also said they plan to vote no.
“From our point of view, they have taken a bit too much of a slug from the debt bottle,” one of them said. This increased the risk that the company will have to spend money on interest payments rather than on investments such as the new 5G mobile communications standard.
Unlike Sunrise management, this investor did not expect UPC’s business to stabilize soon. In the first half of 2019, UPC’s earnings before interest, tax, depreciation and amortisation (EBITDA) fell 16%.
The other top 10 investor complained the purchase price was too expensive.
A top 20 investor reiterated he would vote no. Activist shareholder AOC also rejects the takeover.
To be sure, a number of shareholders support the project, in part because Sunrise has trimmed the size of the capital increase needed to finance the purchase.
“We welcome the adjustment of the terms and at the same time are glad that they are not overburdening the balance sheet,” one top 10 investor said.
Another shareholder saw a slightly higher probability that the deal goes through and planned to support management’s proposal, as did another top investor, who called the revamped rights issue “absolutely positive”.
Sunrise finance chief Andre Krause told Reuters he still expected a majority to back the rights issue although the vote could be tight.
“We have received very positive feedback for the changed capital structure,” he said.
“In any event it is going to be close, if only for the fact that Freenet with 24.5% will vote against it,” he added.
Sunrise will make great efforts to mobilize shareholders for the EGM. “We will promote the deal and make information available for retail investors in Switzerland and be in the media,” Krause said.
One person familiar with the situation said Sunrise was targeting over 70% participation.
The verdict of proxy advisers such as ISS and Glass Lewis could in the end swing the result. Their assessments are due within days.
Editing by Michael Shields