8-K: Liberty Global Announces Sunrise Spin-Off, Updates Financial Guidance

Liberty Global is spinning off Sunrise into a standalone company, with updated financial guidance reflecting spin-off related costs.

Summary

• Liberty Global is proceeding with the spin-off of its Sunrise business, aiming for completion in Q4 2024.
• Sunrise held a Capital Markets Day to present its strategy and financial outlook as a standalone company.
• The spin-off will result in Sunrise being listed on the SIX Swiss Exchange.
• Sunrise has updated its 2024 Adjusted Free Cash Flow guidance to CHF 360-370 million, reflecting one-off spin-off costs.
• The company reconfirmed its previously communicated US GAAP 2024 revenue, Adjusted EBITDAaL and capex guidance.
• Sunrise is targeting a progressive dividend policy with a payout of up to 70% of Adjusted Free Cash Flow, with a first dividend of CHF 240 million expected in 2025.
• Sunrise will have a two-tier share structure with Class A shares listed on the SIX and Class B shares not listed.
• Liberty Global shareholders will receive American Depositary Shares (ADSs) in Sunrise initially, which can be exchanged for underlying shares.

Sentiment

Score: 7

Explanation: The document is generally positive, highlighting the strategic benefits of the spin-off and Sunrise's strong market position. However, the lowered free cash flow guidance and the inherent risks of a spin-off temper the overall sentiment.

Positives

• Sunrise is well-positioned for growth as a standalone company after a successful merger integration with UPC.
• The company has a strong financial profile with a focus on cash flow generation.
• Sunrise has a robust network infrastructure with nationwide 5G and Gigabit coverage.
• The company is targeting a progressive dividend policy with a payout of up to 70% of Adjusted Free Cash Flow.
• Sunrise benefits from a favorable Swiss macro environment and a healthy telecom market.
• Sunrise has a fully hedged debt stack until 2029 with a weighted average cost of debt of approximately 3%.

Negatives

• The 2024 Adjusted Free Cash Flow guidance has been lowered to CHF 360-370 million due to one-off spin-off costs.
• There are risks and uncertainties associated with the spin-off, including shareholder approval and market conditions.

Risks

• The spin-off is subject to customary conditions, including shareholder approval and SEC effectiveness of the registration statement.
• There is a risk that Liberty Global may not receive shareholder approval for the transaction.
• The approval of Sunrise shares for listing on the SIX Swiss Exchange is not guaranteed.
• There is a risk that Sunrise may not be able to successfully operate as an independent public company.
• Unanticipated difficulties or costs in connection with the transaction could impact results.
• The company's ability to realize the expected benefits from the transaction is not guaranteed.

Future Outlook

Sunrise expects to achieve growth and increasing cash flow generation over time, supporting an attractive dividend distribution policy. The company is targeting a progressive dividend policy with a payout of up to 70% of Adjusted Free Cash Flow. Mid-term targets include stable to low-single digit revenue growth, low-single digit Adjusted EBITDAaL growth, capex/revenue of approximately 15%, and Adjusted FCF greater than CHF 410 million on a fully taxed basis.

Management Comments

• Andr Krause, CEO of Sunrise, stated that the company has the Board of Directors, Executive team and all key capabilities needed to succeed as a standalone company.
• Andr Krause believes that the new company represents a compelling investment opportunity as the only pure play Swiss-listed telco.
• Jany Fruytier, CFO of Sunrise, highlighted the strong balance sheet with a fully hedged debt stack until 2029 and a growing cash flow generation profile.

Industry Context

The spin-off positions Sunrise as a pure-play Swiss-listed telecommunications company, allowing it to focus on the specific dynamics of the Swiss market. The Swiss telecom market is characterized by a healthy three-player structure, which provides a stable environment for Sunrise to operate and grow.

Comparison to Industry Standards

• Sunrise's hybrid network strategy, leveraging both HFC and fiber, is a common approach in the European telecom market, balancing cost and performance.
• The company's focus on converged services (FMC) aligns with industry trends, as customers increasingly seek bundled offerings.
• Sunrise's targeted dividend payout ratio of up to 70% of Adjusted Free Cash Flow is competitive with other mature telecom companies.
• The company's debt profile, with a fully hedged debt stack until 2029, is a positive sign of financial stability.
• Sunrise's focus on digital-first strategies for its flanker brands is in line with the industry's move towards online sales and customer engagement.

Related Party Transactions

• Sunrise will continue to benefit from its partnership with Liberty Global via arms-length service agreements.

Stakeholder Impact

• Shareholders of Liberty Global will receive shares in the newly spun-off Sunrise.
• Employees of Sunrise will transition to a standalone company.
• Customers of Sunrise will continue to receive services under the new structure.
• Creditors of Sunrise will be impacted by the new capital structure.

Next Steps

• Liberty Global shareholders will vote on the spin-off transaction.
• Sunrise will seek approval for its shares to be listed on the SIX Swiss Exchange.
• Liberty Global will mail a definitive proxy statement/prospectus to shareholders.
• Sunrise will continue to execute its strategic plan as a standalone company.

Key Dates

Keywords

Sunrise, Liberty Global, Spin-off, Telecommunications, Switzerland, Dividend, Adjusted Free Cash Flow, SIX Swiss Exchange, Capital Markets Day, FMC, 5G, Broadband