Liberty Global to acquire Sunrise Communications by tender offer

Wednesday, August 12th, 2020 
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Liberty Global to Acquire 100% of Sunrise Communications Group by Tender Offer

  • Strategic Combination of UPC Switzerland and Sunrise to Create the Leading Fixed-Mobile Challenger in Switzerland
  • Tender Offer is Unanimously Recommended by Sunrise Board of Directors; Freenet, its 24% Shareholder, has Agreed to Tender its Shares

DENVER, Colorado — Liberty Global (Nasdaq: LBTYA, LBTYB and LBTYK) announced today that, pursuant to the terms of a transaction agreement between Liberty Global and Sunrise Communications Group AG (SIX Swiss Exchange: SRCG), Liberty Global has agreed to make an all cash public tender offer for all publicly held shares of Sunrise at a price of CHF110 per share. The offer represents a 32% premium to the 60-day volume weighted average price (“VWAP”) per share of CHF83.17 during the period up to (and including) August 11, 2020 and values 100% of Sunrise’s equity at CHF5.0 billion[1], representing a total enterprise value of CHF6.8 billion[2].

Key Transaction Highlights

  • All-cash tender offer for 100% of the publicly held shares of Sunrise Communications Group AG (“Sunrise”) at a price of CHF110 per share, funded through a combination of Liberty Global’s existing cash, expected to be approximately CHF3.5 billion, and proceeds from new debt issuance.
  • Sunrise’s Board of Directors is unanimously recommending that its shareholders accept the offer; Freenet AG, Sunrise’s largest shareholder, which holds approximately 24% of Sunrise’s capital, has signed a binding, unconditional commitment to tender its shares at the offer price.
  • Transaction price is underpinned by significant expected total synergies of CHF3.1 billion on a net present value basis after integration costs, with the annual run rate of cost, capex and revenue synergies estimated at CHF275 million. The vast majority of the benefits (approximately CHF2.6 billion) relate to low risk cost and capital expenditure synergies.
  • Attractive acquisition valuation[3] for both parties representing 7.5x adjusted EBITDA[4] and 10.3x adjusted OpFCF[5] after taking into consideration revenue, cost and capital expenditure synergies (net of upgrade costs)[6], or 10.0x adjusted EBITDA and 17.6x adjusted OpFCF before synergies.
  • The tender offer is expected to commence by the end of August with publication of an offer prospectus; closing of the transaction will occur following receipt of requisite regulatory approvals, which the parties expect to receive around year end, and satisfaction of other customary closing conditions as further indicated in the pre-announcement published concurrently with this press release.

Strategic Benefits for Consumers and Shareholders

  • Combination will create the leading national converged challenger in Switzerland. Together, the combined business would have CHF3.1[7] billion in revenue, 2.1 million mobile post-paid subscribers, 1.2 million broadband subscribers and 1.3 million TV subscribers, reflecting approximately 30% market share in each segment.
  • Greater scope for investment in next-generation network and product innovation. After a full acquisition of Sunrise, the combined business will be strongly positioned to continue its network roll-out including 5G and future technologies, supporting a range of new and enhanced products and services. The integration of UPC’s gigabit network, covering around 75% of homes, with Sunrise’s existing FTTH partnerships covering over 30% of homes, will ensure that 90% of Swiss households have access to 1 gigabit broadband speeds by 2021, with a clear roadmap to enable up to 10Gbps over time. In addition, UPC Switzerland’s extensive fibre backbone will further strengthen Sunrise’s leadership position in both 4G and 5G.
  • Differentiated, converged offers for customers. Sunrise is recognized as having best-in-class mobile infrastructure, while also building a meaningful customer base in broadband and TV. UPC Switzerland is the country’s leading provider of gigabit broadband, and offers the best video platform with features such as voice control, 4K, full content offerings and best in-class TV apps. As a fully converged provider, the combined business will be well positioned to compete in the Swiss market, accelerating the sale of converged fixed-mobile services to existing customers and new services using the best of each company’s product portfolios, skills and networks.
  • Strengthened B2B platform. UPC Switzerland’s growing B2B business (#2 behind Swisscom on fixed) will benefit from the enhanced scale delivered by Sunrise’s customer base, increasing the ability to cross-sell converged mobile and fixed products and deliver a stronger customer experience.
  • Value-enhancing transaction for Liberty Global shareholders. The transaction is consistent with Liberty Global’s strategy to create converged, national champions across its core European markets. It represents an attractive opportunity to deploy existing cash to unlock substantial synergies and sustainable free cash flow growth in a market where Liberty Global has invested for fifteen years.

Mike Fries, CEO of Liberty Global, added “The industrial logic of this merger is undeniable, but the real winners are Swiss consumers and businesses. This powerful combination of 5G wireless and gigabit broadband will accelerate digital investment at a time when connectivity has never been more essential. Fixed-mobile convergence is the future of the telecom sector in Europe, and now Switzerland will have a true national challenger to drive competition and innovation for years to come. We look forward to welcoming Sunrise employees to the Liberty and UPC family and congratulate them and the board on their success.”

He continued, “This transaction is another significant step on our path to create fixed-mobile champions in all of our core markets, crystallizing the value of our superior broadband networks and driving long-term, sustainable free cash flow growth. Even after this deal, and assuming completion of our recently announced UK transaction, we will continue to have approximately $7 billion of liquidity[8] to drive value-creation for shareholders.”

Further Details

Under the terms of a transaction agreement between Liberty Global and Sunrise, Liberty Global has published a pre-announcement today for an all cash public tender offer for all publicly held shares of Sunrise at a price of CHF110 per share.

Liberty Global plans to fund the transaction through a combination of approximately CHF3.5 billion of cash from its balance sheet and approximately CHF3.2 billion of financing, of which CHF1.6 billion will be available to refinance existing indebtedness of Sunrise as needed. Upon becoming a wholly-owned subsidiary of Liberty Global, Sunrise will become part of the UPC credit pool. Targeted leverage for this pool will be 5.0x, pro forma for this transaction, including vendor financing and leases.

Indicative Timetable

The offer by Liberty Global is conditioned upon at least two-thirds of all Sunrise shares on a fully diluted basis tendering into the offer at the end of the offer period and other customary offer conditions, including regulatory approvals as set out in the pre-announcement.

The tender offer is expected to be launched by the end of August and will remain open for a minimum of twenty SIX Swiss Exchange (“SIX”) trading days following a ten trading-day cooling-off period under Swiss takeover law. After this period (and subject to extensions) and if the minimum acceptance threshold was reached or waived, there will be an additional acceptance period of ten SIX trading days. Thereafter, the tender offer will end but the transaction will remain subject to Swiss regulatory approval prior to closing. A pre-announcement, including the detailed conditions of the tender offer, is being published concurrently with this press release and a formal tender offer prospectus will be published to launch of the tender offer.

After completion of a successful offer, Liberty Global intends to initiate a squeeze-out procedure and delist Sunrise shares from trading on the SIX. Sunrise is therefore expected to become a wholly-owned subsidiary within the Liberty Global group of companies.

In connection with the transaction, Credit Suisse International, J.P. Morgan and LionTree Advisors are acting as financial advisers to Liberty Global, and Homburger AG and Shearman & Sterling LLP are acting as legal advisers to Liberty Global.

1. Based on a fully diluted number of shares of 45.4 million as of June 30, 2020
2. As reported by Sunrise under International Financial Reporting Standards (“IFRS”). Based on net indebtedness as of March 31, 2020, including operating leases, of CHF1.8BN. Cash balance is adjusted for Sunrise dividend paid out in April 2020
3. All valuation metrics are based on an offer price of CHF110 per share
4. Based on the low end of the 2020 Sunrise Adjusted EBITDA guidance range under Sunrise’s definitions as reported under IFRS
5. Based on the low end of the 2020 Sunrise Adjusted EBITDA guidance range under Sunrise’s definitions as reported under IFRS. Capital expenditure figure represents the mid-point of Sunrise’s 2020 capital expenditure guidance range adjusted for CHF140 million of capital expenditures considered non-recurring upgrade capital expenditures, as defined by Sunrise
6. Pro forma for CHF275 million run-rate synergies comprising of CHF46 million of revenue, CHF187 million of cost and CHF42 million of capital expenditures
7. Based on Sunrise’s revenue for the year ended December 31, 2019 as reported under IFRS plus the revenue of Liberty Global’s Swiss business for the year ended December 31, 2019, as reported under generally accepted accounting principles in the United States (“U.S. GAAP”). Liberty Global’s assessment of acquisition accounting impacts and differences between IFRS and U.S. GAAP on Sunrise’s revenue has not been completed
8. Reflects June 30, 2020 liquidity as adjusted to include the anticipated proceeds to be received at closing related to our pending joint venture with Telefonica in the U.K., and to remove the June 30, 2020 unused borrowing capacity in the Virgin Media borrowing group.

Links: Liberty Global; Sunrise Communications