Sunrise suffers setback as another proxy adviser rejects UPC plan

Swiss service provider Sunrise has suffered another setback to its efforts to secure shareholder approval for its planned acquisition of Liberty Global-owned UPC Switzerland.

According to Reuters, proxy adviser ISS has recommended shareholders to vote against the revised rights issue proposed by the operator to finance the acquisition, citing a note sent to its clients yesterday.

According to the note, ISS believes Sunrise is overpaying for UPC Switzerland. The move was welcomed by AOC, another proxy adviser that is recommending rejection.

According to Reuters’ own survey of shareholders, owners of at least 30% of Sunrise shares are expected to reject the rights issue at the company’s EGM on October 23. Sunrise needs a simple majority to secure approval of the move.

Sunrise CEO Olaf Swantee appeared on CNN this week with a claim that three quarters of shareholders now back the revised capital increase planned by the company.

Swantee said that Sunrise was not trying to convince Freenet, its largest shareholder, which has led opposition to the agreement, but was targeting other shareholders. He said that “shareholders really support this deal” because of its potential to create value.

He said that the lower capital increase the company has called for as part of a restructuring of how it plans to finance the acquisition – the key feature of its plan to win over sceptical shareholders – was possible because expected synergies from the acquisition will be higher than initially calculated and because “the underlying UPC business that we are buying is actually performing better than what we had estimated”, enabling the company to rely on higher debt to finance the deal.

Swantee said that if shareholders voted against the deal the company would have to pay CHF50 million in penalties to Liberty Global.

Sunrise announced a reduction in the size of the rights issue planned to finance its acquisition of UPC Switzerland in a bid to secure shareholder approval for the deal at the end of September.

The telco is to reduce the size of the rights issue by CHF1.3 billion (€1.2 billion) to CHF2.8 billion

Sunrise is also planning to take an increased absolute dividend in the range of CHF350-370 million for the 2019 financial year to its 2020 AGM, based on the higher than expected number of shares in the company post-rights issue.

The company is also introducing a cash-for-title option enabling shareholders to receive the dividend in cash, newly issued Sunrise shares or a combination.

Sunrise’s debt leverage ratio will increase as a result of the move.