Exclusive: CVC prepares sale of Swiss telecom group Sunrise - sources

Reuters News
Posted: Dec 12, 2013 10:39 AM
Exclusive: CVC prepares sale of Swiss telecom group Sunrise - sources

By Arno Schuetze and Oliver Hirt

FRANKFURT/ZURICH (Reuters) - Private equity fund CVC is preparing to divest Sunrise, Switzerland's second-biggest mobile operator, after failing to merge it with a peer in 2010, four people familiar with the matter said.

CVC has started discussions with banks over a possible role in a sale or listing of Sunrise, three of the sources said, although no banks have yet been appointed. An exit could take place within the next 6 to 18 months, the fourth source said.

CVC declined to comment.

Based on the core earnings multiple of 5.1 that its European peers are trading at, Sunrise's equity and debt could be valued at about 3.2 billion Swiss francs ($3.6 billion).

Three operators compete in the Swiss telecoms market, which offers higher profit margins than many other European countries, but smaller rivals to ex-monopolist Swisscom - Sunrise and Orange Switzerland- have long struggled to gain critical mass.

Swisscom's market share has been stable around 62 percent over the last decade, while that of Sunrise has risen only slightly to 21 percent and that of third-ranked Orange stands at 17 percent.

CVC bought Sunrise in 2010 for 3.3 billion Swiss francs.

Soon after, an attempt to merge the second and third place operators Sunrise and Orange was blocked by the Swiss Competition Commission on grounds that it would lead to higher prices for consumers.

At the time, Orange Switzerland was owned by France Telecom and is now owned by private equity group Apax.

"Stock markets are buoyant and there is a lot of M&A activity in the sector - that has sped up CVC's exit considerations," one of the sources said.

"To extract a maximum price, CVC will likely launch a dual track process that may result either in an stock market listing public offering or a trade sale," the source added.

Sunrise's business has struggled this year however, and it is not clear that the company will attract takeover interest from other telecom companies.

In a potential share sale, Sunrise could benefit from the rising valuation of the sector, which has added 25 percent since the beginning of the year.

Analysts said another attempt at consolidating the Swiss market from three to two players was unlikely to pass muster with competition regulators. Meanwhile, many of Europe's large telecom groups such as Orange and Telefonica are in the process of shedding assets in smaller countries to cut debt and are not interested in buying more.

"They could struggle to find a buyer among telecom operators," Robin Bienenstock from Bernstein Research said.

"It's a small market where Swisscom is super dominant, so it's hard to see how a sub-scale operator can ever have a strong position."

In the first nine months of 2013, Sunrise's average revenue per user in mobile services - its most important business line - dropped to 41 from 45 francs a month. Operating profit in the period fell 5.6 percent to 462.5 million Swiss francs.

Hannes Wittig, analyst at JP Morgan, said that the auction of Sunrise could attract entrepreneurs such as Xavier Niel, the billionaire owner of French telecom group Iliad who bid for Orange Switzerland before it was sold to Apax.

"This time round there could be more interest from international players like Carlos Slim, who is now present in the region, or one of the larger European operators looking for scale," said Wittig.

Liberty Global, which owns Swiss cable operator Cablecom, could also look at the asset, said Wittig, but this would contradict the John Malone-backed group's wariness to date of mobile acquisitions.

Liberty, Europe's biggest cable group plans to sell mobile services as part of all-inclusive bundles across its 12 markets in the coming years but is not yet convinced that such so-called quadruple-play offers are a big attraction.

(Editing by Ludwig Burger; Editing by Elaine Hardcastle and Jane Merriman)