Malone’s $6.4 billion UPC sale falls apart
Billionaire cable mogul John Malone’s plan for a $6.4 billion sale of UPC Switzerland fell apart after would-be purchaser Sunrise Communications concluded its shareholders won’t support the move.
Sunrise CEO Olaf Swantee said Tuesday in an interview that the deal was “dead.” The company had earlier called off a shareholder vote scheduled for Wednesday on a rights offering to fund the purchase. UPC parent Liberty Global Plc has yet to say it has walked away.
Liberty Global Chairman Malone had agreed in February to sell the unit, raising the prospect that he would rake in a heftier cash pile to support a range of activities, including potential shareholder payouts and acquisitions in western Europe. But Freenet AG, Sunrise’s biggest investor, railed against the purchase price and an influential proxy advisor came out against the deal, wiping out the possibility of success.
Liberty Global is based in London, but its top management team, including Malone and CEO Mike Fries, is located in Colorado’s Douglas County. The company spun off from Liberty Media Group, which Malone started in 2005.
This is the second setback this year for the man who sold cable provider Tele-Communications Inc. to AT&T for $48 billion in 1999; his attempted purchase of Millicom International Cellular fell apart in January on price concerns. Liberty Global shareholders may also need to recalibrate their expectations for the prices they can expect for future transactions.
“Malone’s not had many failures in his career, and this is a reputational setback if nothing else,” said Mirabaud analyst Neil Campling. “Liberty Global may have to reset some of its ambitions around the values it can achieve for future M&A.”
The transaction, which would have created a bigger player to compete against Swisscom, valued UPC at 10 times adjusted earnings before interest, taxation, depreciation and amortization. Sunrise had agreed to finance the deal through a mix of debt and about 4.1 billion Swiss francs ($4.2 billion) raised from a rights issue. Freenet balked at this mix. Eventually, the rights issue was cut to 2.8 billion Swiss francs, and last week, Liberty Global pledged as much as 500 million francs to support the capital increase.
These changes weren’t enough to earn the approval of proxy advisor Institutional Shareholder Services, which said a fair-value range for UPC was 4.6 billion Swiss francs to 5.2 billion Swiss francs.
Liberty Global is still examining its options within the current share purchase agreement, said a spokesman for the company. That agreement expires Feb. 27.
An attempt by Liberty Latin America to take over Millicom for $7.6 billion in cash and stock fell through after the target’s executives were said to have demanded changes to the terms of the transaction, including a higher premium and cash component. The unwinding of the Swiss effort — Freenet CEO Christoph Vilanek said in a phone interview Tuesday that there’s no way to rescue it — sends a signal to European companies considering participating in industry consolidation.
An end to the deal “probably tells telecom management in Europe that paying a 10-to-12 times Ebitda multiple on a transaction isn’t getting support from investors,” Stephane Beyazian, analyst at Mainfirst, said Monday.
Swantee said Sunrise has no immediate plans to consider alternative acquisitions, and the company will revert to its standalone strategy, “which fortunately has been working well.”
He said this month that a management shake-up at the Swiss company was likely if the deal doesn’t go through. Asked Tuesday if he would quit, he said, “Our priority now is to stabilize the company.”
Swantee will have to do so in a competitive environment that has
Swiss carriers locked in an aggressive discounting war. The UPC purchase would have eased pricing pressure by reducing the number of players.
“The cancellation is a consistent step given the shareholder resistance, but also a missed opportunity to consolidate the Swiss telecom market,” said Mark Diethelm, analyst at Vontobel Securities.
Liberty Global is not short of cash — it will still have about $9 billion in proceeds from sales of businesses to Vodafone Group and Deutsche Telekom, said Pivotal Research analyst Jeff Wlodarczak.
Tuesday’s outcome may complicate other potential deals at Liberty Global, such as acquisitions involving partially owned Belgian unit Telenet or a Dutch joint venture with Vodafone.
Telefonica’s British mobile-only company O2 has long been speculated as a neat fit for the fixed-lineonly network at Virgin Media, which now makes up the majority of Liberty Global’s sales. Meanwhile, Liberty Global execs are preparing to spend money extending their U.K. broadband reach in a land-grab against BT Group.
UPC Switzerland has been Liberty Global’s worst-performing unit, and Malone could attempt to find another partner. Salt, the mobile operator controlled by French billionaire Xavier Niel, is a potential candidate.