8-K: Liberty Global Announces Sunrise Spin-Off Targeting Q4 Listing, Aims to Unlock Shareholder Value

Liberty Global plans to spin off its Sunrise business in Switzerland, targeting a Q4 listing and aiming to unlock shareholder value.

Summary

• Liberty Global is planning to spin off 100% of its Sunrise business to shareholders, with a target listing on the SIX Swiss Exchange in Q4 2024.
• The spin-off aims to establish a fully distributed, local valuation for Sunrise, which is expected to be higher than the current valuation within Liberty Global.
• The transaction involves injecting CHF 1.5 billion (approximately $1.7 billion) into Sunrise to deleverage the company before the spin-off.
• Funding for the deleveraging will come from the sale of All3Media ($400 million), Sunrise's free cash flow ($400-$440 million), and approximately $1 billion of Liberty Global's corporate cash.
• Sunrise is expected to have an attractive dividend policy, with a minimum annual dividend of CHF 240 million.
• Analysts have estimated a preliminary value for Sunrise at around $11 per Liberty Global share.
• Liberty Global will file a confidential Form F-4 with the SEC in May.
• The remaining Liberty Global business will still rely on Sunrise for certain technical, product and administrative services.

Sentiment

Score: 8

Explanation: The document conveys a positive outlook with a clear plan to unlock shareholder value through the Sunrise spin-off. The management expresses confidence in the transaction and its potential to re-rate the company. However, there are some risks and uncertainties associated with the transaction, which temper the overall sentiment.

Positives

• The spin-off is expected to unlock significant value for Liberty Global shareholders by establishing a separate, higher valuation for Sunrise.
• Sunrise is a strong business with multiple growth levers and significant free cash flow, supporting an attractive dividend policy.
• The deleveraging of Sunrise prior to the spin-off will increase its equity value.
• The minimum annual dividend of CHF 240 million from Sunrise represents a substantial yield for shareholders.
• Analysts have already recognized the potential value of the spin-off, with preliminary valuations suggesting a significant increase in value per Liberty Global share.

Negatives

• Liberty Global's cash balance will be reduced by approximately $1 billion to fund the deleveraging of Sunrise.
• The remaining Liberty Global business will be smaller after the spin-off, with Sunrise representing about 12% of aggregate EBITDA and 20% of proportionate EBITDA.
• There is a risk that the remaining Liberty Global business may not be re-rated by the market after the spin-off, potentially impacting its share price.
• The company acknowledges concerns about the potential for reduced liquidity in the remaining Liberty Global shares if the market cap shrinks.

Risks

• The spin-off is subject to customary conditions, including shareholder approval, SEC approval, and other conditions.
• There is a risk that the spin-off may not be completed on the expected timeframe or at all.
• The approval of Sunrise shares for listing on the SIX is not guaranteed.
• The development of a trading market for Sunrise shares is uncertain.
• There is a risk that Sunrise may not be able to operate successfully as an independent public company.
• The remaining Liberty Global business may face challenges in maintaining its value and liquidity after the spin-off.

Future Outlook

Liberty Global expects the Sunrise spin-off to be a game changer, unlocking significant value for shareholders and resetting how the market views the company. The company anticipates a re-rating of the remaining Liberty Global business after the spin-off.

Management Comments

• Michael T. Fries stated that the goal of listing Sunrise on the Swiss exchange is to create a fully distributed local valuation for the company which will represent a meaningful premium to the current stock trades.
• Michael T. Fries mentioned that the Sunrise equity story is compelling, with multiple growth levers and significant free cash flow margins.
• Michael T. Fries said that the dividend from Sunrise alone would represent a 4% yield on the entire market cap of Liberty Global.
• Michael T. Fries stated that the company is in a listening mode regarding potential pre-listing participation in the transaction but is committed to proceeding either way.
• Michael T. Fries expressed confidence that the Swiss transaction is going to be a game changer and will reset how people view Liberty Global.
• Charles H.R. Bracken stated that the implied value of a Liberty Global share is around $25 per share, assuming the current average analyst valuation of Sunrise.

Industry Context

The spin-off of Sunrise is part of a broader trend of companies seeking to unlock value by separating assets and allowing them to be valued independently. This move is also aimed at highlighting the value of Sunrise as a pure-play national champion in a stable three-player market, which may attract investors seeking exposure to the Swiss telecom sector.

Comparison to Industry Standards

• The spin-off of Sunrise is similar to other corporate carve-outs where a subsidiary is separated from its parent company to allow for a more focused valuation.
• The estimated $11 per share valuation for Sunrise is a significant premium compared to the current trading price of Liberty Global, suggesting the market is not fully valuing the asset.
• The expected dividend yield of 4% from Sunrise is competitive with other established telecom companies in Europe.
• The deleveraging strategy is a common practice to improve the financial health and attractiveness of a spun-off entity.
• The use of a multi-share structure and listing on the SIX Exchange is a standard approach for companies seeking to establish a local valuation in Switzerland.

Stakeholder Impact

• Shareholders are expected to benefit from the spin-off through a higher valuation of Sunrise and potential dividends.
• Employees of Sunrise will become part of an independent public company.
• Customers of Sunrise will continue to receive services from the newly independent entity.
• Suppliers and creditors of Sunrise will have a new counterparty after the spin-off.

Next Steps

• Liberty Global will file a confidential Form F-4 with the SEC in May.
• The management team intends to conduct a Capital Markets Day in due course.
• The company will complete a roadshow to promote the Sunrise spin-off.
• The spin-off is targeted for completion in Q4 2024.

Key Dates

Keywords

spin-off, Sunrise, Liberty Global, SIX Swiss Exchange, dividend, deleveraging, shareholder value, FMC, equity valuation, capital markets