TDC loses its Sunrise



Danish telecoms group TDC has sold its Swiss unit Sunrise to the private equity group CVC Capital Partners for CHF3.3 billion ($3.28 billion).
This finally gives TDC an opportunity to refocus itself as a Nordic player, following its unsuccessful attempt to exit Switzerland via a merger with Orange. However, the deal is essentially a handover within the private equity sector and we do not expect it to shake up competition in the Swiss market.
Swisscom has little to worry about from the sale of Sunrise to private equity firm CVC. Admittedly, the new private equity owners will want to grow Sunrise and prime it up for future sale, and that is why CVC has pledged to maintain Sunrise’s Challenger strategy in the market and is insisting on continued investment in infrastructure and distribution.
But CVC cannot do much beyond maintaining Sunrise’s current position in the market and ensuring that profit margins remain healthy enough to satisfy the banks that financed the deal.
Sunrise has approximately 1.9 million mobile customers and 600,000 broadband users, and got the go-ahead in June to sell the latest iPhone device. In 1Q10, it grew its EBITDA by 13.9% year-on-year.
However, it could all have been different if a proposed merger between Sunrise and Orange had not been vetoed by Swiss authorities in April 2010. If successful, that would have presented much more potent competition to Swisscom’s 62% mobile market share.
In a market of 9.1 million mobile subscribers, TDC has a 21% share while Orange has 17%. But maintaining the status quo matters in Switzerland, and so the authorities declared that reducing the market to only two players would undermine competition and keep prices high.
The sale of Sunrise from one private equity group to another is the biggest takeover of a telecoms operation in Europe this year, according to Ovum’s deals and alliances database. At a time when the industry is just recuperating from the effects of the global recession, fewer deals are happening and private equity firms are driving the majority of them.
So far in the year there has been little activity of one operator buying another in the region, apart from Swisscom’s offer to buy the remaining stake in FastWeb and Tele2’s similar deal for Spring Mobile in Sweden.
On the contrary, private-equity-led M&A activity is showing signs of life. The sale of Sunrise joins the private equity takeover of Manx Telecom in the Isle of Man; UK-based HgCapital and CPS Partners paid £159 million ($247.1 million) for the stake in June 2010.
There are also growing indications that Polkomtel, Poland’s leading mobile operator, will be acquired by private equity firms.
Indeed, evidence from the financial markets suggests that more private equity deals may be on the cards. The Financial Times reports that at 70% debt and 30% equity the Sunrise buyout is the biggest leveraged loan in Europe for two years, hinting at a growing willingness to fund more private equity deals.
For TDC, the exit from Sunrise gives it a chance to look again at opportunities to refocus the business as a Nordic player and refloat it via an IPO.