By Oliver Hirt and Angelika Gruber
ZURICH (Reuters) - Sunrise Communications Group (S:SRCG) bowed to investor pressure on Tuesday and scrapped its 6.3 billion Swiss franc ($6.39 billion) acquisition of Liberty Global's (O:LBTYA) Swiss cable business UPC.
The Swiss telecommunications group had battled to save the deal in the face of opposition from its biggest shareholder, Germany's Freenet (DE:FNTGn) that holds 25% of its stock.
Sunrise will now focus on going it alone, its top managers said, stressing that its dividend was not at risk from a 50 million Swiss franc break fee it owes Liberty Global, set up by U.S. cable pioneer John Malone.
It cancelled an extraordinary shareholder meeting (EGM) planned for Wednesday to approve a 2.8 billion franc cash call needed to finance the UPC deal, avoiding an embarrassing defeat on the measure.
"The board of directors of Sunrise has concluded that the clear majority of shareholders who have registered their shares to vote at the EGM do not support the capital increase," it said, citing shareholder indications and opposition from Freenet.
Freenet and other investors had opposed the rights issue even in its scaled-down form.
"We regret cancelling the EGM. We have spent a significant amount of time engaging with our shareholders and continue to believe in the compelling strategic and financial rationale of the acquisition," Sunrise Chairman Peter Kurer said.
It said it cancelled the EGM with Liberty Global's consent.
Although the share purchase agreement technically remains in force until late February, Sunrise made clear the deal was effectively dead.
"Management is now really focused on implementing the standalone strategy. We respect the decision of the shareholders," Chief Executive Olaf Swantee told Reuters, adding he did not expect to resume negotiations with Liberty Global.
TOO EXPENSIVE
Some Sunrise investors had said the price tag for UPC was too expensive and raised concerns that Liberty Global was not taking part in the deal.
Liberty Global this month offered to buy up to 500 million Swiss francs in new Sunrise shares as a way of easing through the capital hike needed to clinch the sale.
"The existing share purchase agreement between the parties will remain in place with some minor amendments, including the flexibility to convene a new EGM and certain adjusted termination rights," Liberty Global said on Tuesday.
Sunrise shares, which had fallen more than 10% this year, gained 2.3% to 79.35 francs by late morning.
Vontobel analysts said the collapse of the deal was a missed opportunity to consolidate the Swiss telecom market, dominated by state-controlled Swisscom (S:SCMN).
"We expected a less promotional environment post the transaction among the smaller operators, which is now likely to continue. Nonetheless, we continue to expect Sunrise taking market share in mobile and continue its attractive dividend policy," they said in a research note.
But they removed the 50% acquisition synergies it had included in its valuation and lowered its price target to 85 francs.