Another twist in Liberty Global’s frantic few months occurred late last week, as German telco Freenet slapped a veto on the acquisition of UPC Switzerland by Swiss cableco Sunrise Communications, in which Freenet owns a 24.5% stake. It gives the impression that doing business with Liberty Global is the last thing on anyone’s mind right now, even at a what should be a more than tempting price.
The intervention echoes the sentiments of Christoph Vilanek, the CEO of Freenet, having admitted to Reuters in October that Freenet was open to offers for its Sunrise stake, valued at the time at around $1 billion, but he was firmly against any deal with Liberty Global. That price tag would bring Freenet a profit in the region of $200 million for its quarter share in the Swiss operator, which currently makes it the largest shareholder.
There were already murmurs about the unlikelihood of the deal reaching regulatory approval due to the significant cable footprint of UPC Switzerland – but Freenet’s issue is that existing shareholders will be lumped with all the risks following the deal, citing a “challenging structure of transaction” regarding the funding of a $4.1 billion right issues.
Late last year, Salt was also dragged into acquisition rumors, except this was a role reversal situation in that it was suggested UPC Switzerland was interested in buying the Swiss mobile operator. We said at the time it was unlikely Salt’s founder Xavier Niel, which bought out the company from Orange, would sell out to Liberty Global.
In a deal proposed only one month back, Freenet stepped in just days after the two operators announced an agreement for a $6.3 billion deal including debt, completing Liberty Global’s rebalancing project. Rumors over the size of the price tag have ballooned over the past few months, with increasing value seen in UPC Switzerland’s network which reaches approximately 60% of Swiss homes. UPC has 1.1 million video subscribers, of which roughly half at 645,000 are on the premium tier, and there are also 146,000 signed up to mobile services.
Sunrise meanwhile has 2.2 million mobile subscribers, 400,000 internet customers, and a pay TV footprint of roughly 200,000 users. If it can agree to buy out Freenet’s share somehow, then it plans to upgrade the UPC Switzerland network using DOCSIS 3.1 technology, claiming it will soon be able to offer 10 Gbps services outside of its fiber footprint. This will be key in a market where Swisscom is flexing its muscles as the top dog in broadband.
We have noted before how the Liberty strategy of shrinking its European activities, following the sales of assets in Germany, Hungary and the Czech Republic to Vodafone, suggests its Polish and Slovakian operations are too in the firing line for a sale. Should that happen, it would strongly support our suggestion of the bigger picture being Liberty Global’s focus on Virgin Media in the UK and Ireland in order to firm up a fortress to defend against the new Comcast-fronted Sky business.