October 10, 2019 / 9:21 AM / 5 months ago

UPDATE 1-Proxy ISS recommends to reject rights issue for Sunrise's UPC deal - sources

(Adds detail, background)

ZURICH, Oct 10 (Reuters) - Proxy adviser ISS has recommended that shareholders vote against a rights issue Sunrise Communications will propose to finance its planned 6.3 billion Swiss franc ($6.35 billion) takeover of cable operator UPC from Liberty Global, a report sent to clients on Thursday showed.

Opposition to the deal has steadily gained traction with at least 30% of Sunrise votes, including German group Freenet , set to reject a 2.8 billion Swiss francs equity issue at an extraordinary shareholder meeting on Oct. 23.

"On balance, Sunrise appears to be overpaying for assets in a transaction that appears to have debatable long-term strategic merit. As such, shareholders are recommended to vote against the transaction at this time," ISS said in a document seen by Reuters.

"Our valuation analysis suggests a fair value range of 4.6 - 5.2 billion Swiss francs (enterprise value) for UPC on a standalone basis if its performance were in line with that of peer cable operators," ISS said, adding that operational difficulties including declining revenues made the 6.3 billion consideration further appear excessive.

The proxy adviser said it saw "seemingly limited downside risk for Sunrise shares in rejecting the deal", but shareholders would have to bear the cost of the break-up fee payable in that case.

Sunrise couldn't immediately be reached for a comment. ISS said the document would be published to media on Friday. ($1 = 0.9921 Swiss francs) (Reporting by Oliver Hirt and Angelika Gruber; writing by Silke Koltrowitz; editing by Brenna Hughes Neghaiwi)

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