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Liberty Global plots Swiss turnaround with $7.5B Sunrise deal

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Liberty Global plots Swiss turnaround with $7.5B Sunrise deal

After a string of disposals across its global markets, Liberty Global PLC is using some of its cash reserves on a surprise Swiss deal in a bid to compete with the country's incumbent telco Swisscom AG and provide bundled mobile and internet services.

The cable firm is acquiring Switzerland's second-largest wireless operator Sunrise Communications Group AG in an all-cash deal that values the firm at CHF6.8 billion ($7.4 billion), including debt. The move is the reverse of Sunrise's attempt in 2019 to purchase Liberty's UPC Switzerland Holding BV unit, which was blocked by the former's shareholders.

The Sunrise acquisition, which will be funded through a combination of existing cash and new debt, is consistent with Liberty's deal-making strategy in Europe, in that it combines the Swiss mobile business with its existing cable operations as it looks to cut costs and introduce converged services that span 5G, full-fiber broadband and pay TV.

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The merged entity will be able to deliver high-speed internet to 90% of Swiss households by 2021, Liberty said. It will also likely benefit from Sunrise's existing full-fiber partnership with Salt Mobile SA, a unit of French telecoms company Iliad and the third-largest carrier, to bring services to rural and harder-to-reach areas. The companies have agreed to invest CHF3 billion in the joint venture.

The agreements between the smaller players reflect the fiercely competitive nature of the Swiss market, where incumbent Swisscom captured 60% of the country’s 10.5 million mobile subscriptions in 2019, according to data compiled by Kagan, a research division within S&P Global Market Intelligence.

Liberty has its own challenges in the region. Its Swiss UPC unit lost almost 33,000 customers in the first six months of the year, compared to a loss of 41,700 subscribers in the prior-year period. A lack of converged services means it is also generating less revenue per user in the country.

With convergence becoming more popular in Europe, Liberty pursued joint ventures to bolster its services. Its Belgian subsidiary Telenet, in which it owns a 60% stake, acquired Base, the third-largest wireless operator in the country, in 2015. That was followed by a merger in late-2016 with Vodafone Group PLC in the Netherlands to create a converged telecoms firm in VodafoneZiggo. A joint venture between its U.K. and Ireland unit Virgin Media and Telefónica UK Ltd.'s cell carrier O2 is pending, subject to regulatory approval.

Liberty Global CEO Mike Fries said Aug. 12 that it was open to listing Sunrise, echoing his statement about the U.K. joint venture. "That has a very good chance of happening," Fries said of a potential IPO. "We do not have a problem with publicly listed companies, our operating company in Belgium [Telenet] is a publicly listed company."

Liberty is "evolving" into a holding company with several potential IPOs in the pipeline, according to Vijay Jayant, head of the cable and satellite and telecommunication research team at equity analysis firm Evercore ISI.

"A lot of the firm's value basically lies in its joint ventures," he said in an interview. "I would not be surprised if some of these are eventually listed and Liberty is a holding company with all these different equity stakes with a public value on them."

Where those listings happen largely depends on the strength of a subsidiary's "fixed-mobile narrative" in its domestic market, he noted.

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