By John Revill
(Reuters) - Sunrise Communications Group AG agreed to buy Liberty Global PLC's Swiss unit in a 6.3 billion Swiss francs (4.75 billion pounds) deal to create a bigger challenger to Switzerland's dominant mobile and internet provider Swisscom.
The purchase of Liberty's UPC Switzerland, to be accompanied by a 4.1 billion francs rights issue, bolsters Sunrise's position as Switzerland's second largest telecoms company, and follows Liberty Global's sale of its Austrian business to T-Mobile Austria last year.
Sunrise will pay Liberty Global 2.6 billion Swiss francs in cash, and assume 3.6 billion Swiss francs of UPC's debt, the company said in a statement.
Analysts have said a tie-up makes sense, given UPC's fixed and mobile services will strengthen Sunrise's No. 2 position in the Swiss market and help it go head-to-head with Swisscom as it seeks to lure customers away from the country's dominant telecoms player.
The UPC business has 1.1 million TV customers, albeit with falling subscriptions, and 138,000 mobile phone clients in Switzerland.
The deal gives Sunrise a big chance to leverage its brand name and distribution network "to improve the current negative trajectory of UPC Switzerland by cross-selling fixed broadband and TV offers to existing Sunrise customers," the Swiss company said in a statement.
Liberty Global, set up by U.S. cable pioneer John Malone, has been selling off its assets in the last year. The U.S. listed company is also awaiting European Union approval for its sale of its assets in Germany and eastern Europe to Vodafone for $21.8 billion.
Proceeds from Sunrise's rights issue, which must be approved at the April 10 shareholders meeting, will fund a 2.7 billion franc cash payment to Liberty Global; redeem 200 million francs of 1.5 percent senior secured notes due 2024; and prepay and cancel 910 million francs of Sunrise’s existing term loan facilities.
They will also cover 200 million francs in transaction costs.
Sunrise also said it got an extension of up to 500 million francs of its existing term loan facility and 200 million francs of its existing revolving credit facility for a period of 5 years after the deal is completed.
The deal is expected to close in the second half of 2019 and add to Sunrise's equity free cash flow per share from the first year after that.
Credit Suisse, JPMorgan and LionTree served as financial advisers to Liberty Global, while Deutsche Bank, UBS and Morgan Stanley advised Sunrise.
(Reporting by Ismail Shakil in Bengaluru and John Miller and John Revill in Zurich; editing by Grant McCool & Shri Navaratnam)