01.10.2019 - 09:00 Uhr

freenet AG reconfirms its decision to vote against the proposed capital increase of Sunrise in relation to its envisaged acquisition of UPC Switzerland


Büdelsdorf, 1st of October 2019 – freenet AG (“freenet”) reconfirms its decision to vote against the proposed capital increase of Sunrise Communications Group AG (“Sunrise”) in relation to its envisaged acquisition of UPC Switzerland (the “Transaction”).

The adjustment to the target capital structure scratches only at the surface of the package of highly unfavourable deal terms and the fundamental strategic challenges of the transaction - in its entirety still leading to value destruction for all existing Sunrise shareholders. freenet regards the strategic rationale of the Transaction as fundamentally flawed.

freenet is highly convinced that Sunrise is excellently positioned on a standalone basis, with massive share price upside on the back of its impeccable strategic positioning in one of the most attractive telecom markets – with all of these upsides being achievable without the discount of meaningful integration risks attached to the Transaction.

The change in the target capital structure is only a scratch on the surface of the package of highly unfavourable transaction terms, such as the inflated acquisition price for an inferior technology and the inadequate risk and value distribution between Sunrise, Liberty Global and UPC bondholders:

freenet welcomes that Sunrise reviewed the target capital structure and considers a higher leverage. Sunrise management, despite their initial resistance, have recognised that our concerns around the initial target capital structure were justified and in the best interest of all Sunrise shareholders. However, the increase in leverage doesn’t go far enough to address the overall package of highly unfavourable deal terms, nor does it improve the strategic rationale of the transaction – it only reduces dilution.

In particular, freenet reiterates its deep concern that the terms of the Transaction are highly unbalanced and unfavourable for all existing Sunrise shareholders, not taking into account the operating and economic reality of UPC Switzerland and Cable in general (for more details see additional information as set out in Annex 1):

  • Strategic rationale: The strategic rationale of the Transaction is fundamentally flawed, given the inferiority of Cable vis-à-vis 5G and fibre becoming even more visible based on accelerated technological progress, and as evidenced in many other telecom markets already.
  • Purchase price: The purchase price and implied valuation for UPC Switzerland is too high.
  • Synergy allocation: A significant portion of the potential hypothetical synergies are being paid away to Liberty Global in advance and shall be funded by existing Sunrise shareholders only. freenet acknowledges the announcement of higher expected synergies but remains highly sceptical as dissynergies are being expected.
  • Transaction structure: Structuring the acquisition as an all-cash Transaction leaves still all execution risks with existing Sunrise shareholders.
  • Debt structure: The takeover of the UPC bonds may lead to significant risks to the detriment of Sunrise and its shareholders. There is a significant value transfer from Sunrise shareholders to UPC bondholders in excess of €300mn as a result of the latter’s free upgrade to an investment grade structure.

freenet’s representatives remain disappointed to be excluded from ongoing discussions on the Transaction on the Sunrise Board of Directors, as this is not an adequate way to handle constructive shareholders with an opposing opinion. This practice has taken away the opportunity to jointly evaluate a solution in the best interest of Sunrise as well as for all of its stakeholders.

freenet management has consistently communicated its concerns around the Transaction and its terms. The sudden change of the suggested transaction financing after denial of this possibility for seven months raises the question whether Sunrise management is still convinced about the Transaction and its parameters overall.

Taking the above concerns on transaction terms and strategic rationale into consideration, it is in the best interest of Sunrise and all of its shareholders to oppose the deal, as the strategic logic and transaction terms are not acceptable and value destructive – especially as freenet believes in the strong prospects and value creation potential of Sunrise standalone.

Sunrise has a bright future standalone with massive value upside – especially if not deploying its capital and management attention to an overpaid asset with an inferior technology.

Consequently, freenet reconfirms to vote against the rights issue at the Extraordinary General Meeting.


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