Liberty Global has agreed to buy Swiss telecom company Sunrise Communications in an all-cash stock deal valued at $7.4 billion.
Under the terms of the offer, Liberty (LBTYA) will purchase 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 per share of CHF83.17 during the period up to Aug. 11. In a joint statement the two companies, said that the tender offer has been unanimously recommended by Sunrise’s Board of Directors. In addition, Freenet, which owns a 24% stake in Sunrise has agreed to tender its shares.
Liberty Global, which is chaired by billionaire John Malone, is one of the world’s leading converged video, broadband and communication companies, with operations in six European countries under the brands Virgin Media, Telenet and UPC. Its next-generation, fibre-based networks connect 11 million customers subscribing to 25 million TV, broadband internet and telephone services. The company has 6 million mobile subscribers.
The companies said that the merger would create a leading fixed mobile challenger in Switzerland. Together, the combined business would have CHF3.1 billion in revenue, 2.1 million mobile post-paid subscribers, 1.2 million broadband subscribers and 1.3 million TV subscribers, reflecting about 30% market share in each segment.
“The industrial logic of this merger is undeniable. This powerful combination of 5G wireless and gigabit broadband will accelerate digital investment at a time when connectivity has never been more essential,” Liberty Global CEO Mike Fries said. “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.”
Fries added that even after this deal the company will have approximately $7 billion of liquidity to drive value-creation for shareholders.
Liberty Global plans to fund the transaction through a combination of about CHF3.5 billion of cash from its balance sheet and about CHF3.2 billion of financing, of which CHF1.6 billion will be available to refinance existing indebtedness of Sunrise as needed.
Liberty Class A shares, which are advancing 2.5% to $22.59 in morning market trading, are now down less than 1% year-to-date. (See Liberty stock analysis on TipRanks)
Pivotal Research analyst Jeffrey Wlodarczak late last month raised Liberty’s price target to $30 from $27 and kept a Buy rating on the stock following the deal to merge Liberty’s UK cable assets with Telefonica’s O2 wireless assets.
Wlodarczak believes that the deal should “transform the narrative” of the UK story to “one of growth driven by the best in market wireline/wireless product”, adding that he views the $30 price target as conservative.
The rest of the Street has a cautiously optimistic outlook on the stock with a Moderate Buy analyst consensus. The $29.25 average price target indicates 30% upside potential to current levels.
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