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Liberty Is Said to Hold Talks With Sunrise for Swiss Venture

(Bloomberg) -- Liberty Global Plc is in talks with Sunrise Communications Group AG about a potential partnership to combine and expand their businesses in Switzerland, according to people with knowledge of the matter.

The early-stage discussions could pave the way for a joint venture between Liberty’s UPC unit and Zurich-based Sunrise, which has a market value of about 4 billion Swiss francs ($4.2 billion), the people said, asking not to be identified because the negotiations are confidential. The combined business’s structure could mirror the deal that billionaire John Malone engineered two years ago for Liberty Global, his European cable-TV company, with Vodafone Group Plc in the Netherlands, the people said.

The companies are working with advisers as they evaluate strategic options, the people said. The two sides may not reach an agreement, they said. Sunrise shares fell by the most in more than a year on the Bloomberg News report, reflecting investors’ disappointment that Liberty isn’t discussing an outright acquisition of Sunrise.

A representative for London-based Liberty Global declined to comment. Sunrise didn’t respond to an email or call.

Takeover Expectations

The stock “was partly supported by hopes/expectations” that UPC or Liberty would launch a full takeover bid, according to Panagiotis Spiliopoulos, an analyst at Vontobel. “A JV solution is difficult to value as we have no clue about the structure of the deal,” among other matters, he said.

Shares of Sunrise fell as much as 5.7 percent, the most since November 2016, before trading down at 85.60 francs as of 4:15 p.m. in Zurich trading. The move erased this year’s gains, leaving it at a 3.8 percent decline so far in 2018.

Liberty Global and Vodafone, the world’s second-largest mobile carrier, in 2016 agreed to combine their Dutch businesses to create a provider of Internet, TV and mobile services. The two firms have in recent weeks also held talks about some of their other operations in continental Europe, which could result in redrawing their spheres of influence in the region.

Liberty’s Chief Executive Officer Mike Fries last month signaled his firm’s appetite for becoming “a larger player” in Switzerland. The company also said in December that it plans to use the proceeds from the sale of its Austrian cable division to Deutsche Telekom AG for 1.9 billion euros to reduce debt in its remaining UPC business unit, which includes Switzerland, Austria and Central Europe.

Meanwhile, Sunrise wants to accelerate growth by targeting Internet and TV customers without using acquisitions, Chief Executive Officer Olaf Swantee said in an interview in November 2016. The company in May agreed to sell its phone towers in its home market to investors led by Cellnex Telecom SA for about 500 million francs, and said it would use some of the proceeds to pay down debt in an effort to improve its credit ratings. It has also been investing in its mobile network to boost customer-service quality.