What’s Going On Here?

Telecoms companies often boost their earnings by merging with one another – growing in size while cutting costs. But Sunrise’s $6 billion plan to buy rival Liberty Global’s Swiss cable network was cut short.

What Does This Mean?

• Sunrise announced the Liberty deal back in February. To cover the costs, it would’ve had to
  • reorganize its existing debts, as well as
  • sell new shares

in order to raise a third more than its current value.

• Sunrise had hoped that “synergies” – which come from cutting duplicate costs across the newly combined business – would boost its profits and enable it to repay its debts over time.
• But investors weren’t convinced – particularly after German telecoms company Freenet, which owns a quarter of Sunrise’s shares, made its disapproval known. And so, lacking support, Sunrise announced it had cut off communication with Liberty.

Why Should I Care?

For markets: When a plan doesn’t come together.

• The sunset of Sunrise’s deal wasn’t a massive surprise to investors, but the fact European competition regulators approved the deal in the first place may have been. Regulators have formed in halting potential European deals for fear a too-dominant company will force customers to pay higher prices for a worse service.
• But investors might’ve opposed the move because Sunrise would’ve had stiff competition from market-leader Swisscom, potentially making cost-cutting more difficult. And that might explain why the deal’s collapse saw Sunrise’s shares rise 3%.

Zooming out: Another disrupted deal.

• In August, online food delivery company Just Eat agreed to merge with Dutch rival Takeaway.com, but a spanner was thrown into those works too. Prosus – a newly listed European internet conglomerate – made a higher takeover offer for Just Eat.
• And while Just Eat rejected it, the British company’s stock price shot up 25% – higher than the offer price – likely as investors anticipated the start of a bidding war.

Content source: Finimize. (2019) Channel-Chopping. Available from: https://www.finimize.com/wp/news/channel-chopping/ [Accessed 23 October, 2019]