John Malone’s plan to sell Liberty Global Plc’s Swiss operation to Sunrise Communications Group AG has triggered open warfare at the buyer. Sunrise faces two big challenges: Getting the deal done, and stabilizing its shareholder register.

Freenet AG, Sunrise’s biggest investor, says the 6.3 billion-franc ($6.4 billion) acquisition is too expensive and doesn’t like the 4.1 billion-franc rights offering arranged to fund it.

The German mobile phone company, however, has particular reasons to object. Its high leverage means it probably can’t afford to cough up for the fundraising. If anything, it has an incentive to sell rather than buy Sunrise stock. Whatever Freenet’s motivations, it plans to vote its 25% stake against the rights offering – but the motion only requires simple majority approval to proceed.

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Sunrise is straining to prevent other investors from taking Freenet’s side. It has accused Freenet’s chief executive officer and chief financial officer, who both sit on its board, of conflicts of interest. It has shut them out of further discussion on the deal, an astonishing move. 

Meanwhile, it has unearthed further cost savings to help justify the price, which, while no bargain, already seemed justifiable after factoring in the potential gains. But this isn’t the central issue: Sunrise says Freenet’s directors had recently accepted that it would be hard to push for a discount.

Sunrise has made reasonable steps to address the main problem: The size of the rights offering. The company has proposed substituting 1 billion francs of the stock sale with a so-called mandatory convertible bond – debt that would turn into equity at a later date when, hopefully, Sunrise’s share price is higher than it is today. This can only be the start.

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The Zurich-based telecommunications company rightly suggests that it could use more debt to fund the deal. Leverage would be three times Ebitda under the current structure; something closer to four times seems tolerable. That additional step might not be enough for Freenet, but could keep other shareholders onside.

There’s a lot at stake. If the transaction falls through, the damage would be worse for Sunrise than Liberty. Malone has better options than renegotiating a fresh sale at a lower price, and isn’t under pressure to raise cash. The Swiss business itself has at least stabilized after is lost subscribers.

For Sunrise CEO Olaf Swantee, being shunned by a majority of his investors would leave him in a tight spot. Ambitious CEOs can survive shareholder rebellions: Think of Tidjane Thiam’s aborted tilt at Asian insurer AIA Group Ltd. when he ran Prudential Plc. But a failed deal and a running battle with a financially strained and sizable investor isn’t sustainable.

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To contact the author of this story: Chris Hughes at chughes89@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

©2019 Bloomberg L.P.

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