Is the UPC deal not off the table for Sunrise after all?

Opinions were made when last week the extraordinary general meeting, at which the necessary capital increase for the purchase of UPC should have been approved, was cancelled by Sunrise at short notice: The deal is definitely off the table. Major shareholder Freenet, a German telecoms company, had fought tooth and nail against the transaction and had recently been able to convince other shareholders that the purchase of UPC would be an expensive mistake.

"Hub of the market"

But what will happen to UPC now? The owner Liberty Global shows itself to the NZZ on Sunday Liberty Global is still convinced that it is anything but a slow seller. They remain "very optimistic" about the business in Switzerland, says Liberty Global CEO Mike Fries. "UPC is the linchpin of the market." He bases this assessment on the fact that UPC offers the only fixed network that covers 75 percent of the market with a speed of 1 gigabit per second. In addition, the mobile business is growing.

Switzerland is not one of the core markets

For industry experts, however, it should be clear: Liberty Global wants to get rid of UPC Switzerland. Having already sold numerous subdivisions to Vodafone, the company actually wants to concentrate on the newly defined core markets of the UK, Belgium and Poland. Switzerland is not one of them.

Only those who can exploit synergies dig deep into their pockets

What is missing is a suitable buyer. One that would dig as deep into its pockets as Sunrise would have done. The number two in the Swiss telecommunications market would have paid CHF 6.3 billion for the opportunity to become a serious contender for the throne on which Swisscom has always and undisputedly sat by acquiring UPC. The high purchase price was justified by Sunrise with a large synergy potential - almost half of the billion sum could have been saved in the future by merging the fixed network and mobile communications infrastructure.

The assumption is obvious: Anyone who cannot claim such synergy effects will hardly pay such a high price. The only company in Switzerland that could reap similar benefits from a transaction would be Salt. But the number three in the Swiss market has so far shown no public interest in UPC.

Vodafone deal also only worked out in round two

According to the assessment of the NZZ on Sunday Liberty Global therefore has only one hope: that it will reach an agreement with Sunrise after all. This would not be the first time. In the case of the above-mentioned sale to Vodafone, talks were initially declared to have failed due to disagreements on price, before the deal finally worked out: the national companies of Germany, Hungary, Romania and the Czech Republic were sold for 21 billion dollars.

Thus, Liberty CEO Fries also maintains that he believes Sunrise is the best solution. The transaction would have created enormous financial and strategic value, he is convinced. "The industrial logic was clear. The outcome says nothing about the European telecom sector or fixed-mobile convergence, but everything about this unique Swiss public company and ultimately one of its shareholders," he tells the NZZ on Sunday.

Freenet CEO Christoph Vilanek had always strongly questioned this said logic. In his view, it makes no sense to invest a lot of money in cable infrastructure because of the upcoming 5G development.

At Liberty, one still hopes for Sunrise

The fact that Liberty Global could stick to the Sunrise path is shown by a report of the Tages-AnzeigerAccording to the internal communication at UPC after the deal collapsed, the two companies were still determined to carry out the transaction and would continue to examine ways to make it possible. Later, in a second letter, it was communicated that it was noted that Sunrise wanted to continue as an independent provider.

Sunrise says it is no longer negotiating with Liberty. Freenet also denies rumors that it is negotiating directly with Liberty Global. In the longer term, Freenet is "convinced of a massive increase in value at Sunrise in the stand-alone concept" and wants to remain a shareholder accordingly, the major Sunrise shareholder told the Sonntagstitel.

With Freenet on board, the only option is to go it alone

In October, Sunrise had written in an argument for the takeover that Freenet had demanded that Sunrise or Liberty Global buy a significant portion of Sunrise shares. However, the Sunrise board of directors firmly rejected this. It can be assumed, however, that this would be a mandatory prerequisite for the UPC deal to go through after all. As long as Freenet - which owns around a quarter of Sunrise - has so much influence and say in the matter, it will probably have to go along with its stand-alone course.