By Freya Berry and Pamela Barbaglia
LONDON (Reuters) - European private equity firm CVC (CVC.UL) is resuming the sale of Swiss mobile telecoms company Sunrise and could hire a bank to advise on a deal worth up to 4.9 billion Swiss francs (3.19 billion pounds) by the end of the year, several sources familiar with the matter said on Thursday.
CVC had shelved plans to start a sale late last year because earnings and cash flows were not as strong as expected, two of the sources said, but it now believes that improving figures at Switzerland's second-biggest mobile operator could facilitate either a sale or initial public offering (IPO).
Sunrise and CVC declined to comment but the sources, who asked not to be named because the talks are private, said the private equity firm is likely to consider both a sale and public listing of the company it bought in 2010 for 3.3 billion Swiss francs.
The Swiss company's 2013 earnings before interest, tax, amortisation and depreciation (EBITDA) were down 2.7 percent year on year at 614 million Swiss francs, according to the company's website.
Cashflow, meanwhile, has been hit by CVC's significant investment to improve the business. EBITDA minus capital expenditure before licence payments dropped to 332 million Swiss francs last year, from 458 million Swiss francs in 2011.
But CVC's investment in the business appears to be paying off and this year's second-quarter EBITDA was up 5.7 percent at 159.4 million Swiss francs.
Given that Swisscom, the country's leading operator, currently trades at a multiple of eight times EBITDA, Sunrise could be valued at as much as 4.9 billion Swiss francs.
In spite of the improving numbers, Sunrise might not be an easy sell for CVC because European mobile operators have had margins squeezed by increased competition and the continuing need for investment to improve the quality of their networks.
SMALL MARKET
It is also hampered by the relatively small size of the Swiss mobile market, which has prompted operators to scrap for cable assets to boost their valuations.
Telecoms operators currently trade at an average of 5.9 times EBITDA against 8.1 times for cable companies, Thomson Reuters data shows.
Though Swisscom's higher multiple suggests that Sunrise could be worth nearly 5 billion francs at the top end, the average sector multiple of 5.9 - slightly less than the six times EBITDA paid by CVC four years ago - would value the business at only 3.6 billion Swiss francs.
Sunrise, however, benefits from a high-quality network thanks to the more than a billion Swiss francs CVC has spent over the past three years on network infrastructure, according to the operator's website.
Unlike Orange Switzerland, it also has a fixed line business and could appeal to the likes of France's Altice (AS:ATCE) or Mexico's America Movil (MX:AMXL), some of the sources said.
Neither Altice nor America Movil were immediately available for comment.
Furthermore, price competition in the Swiss market is not quite as fierce as in countries such as France. Competition among the principal operators mainly revolves around the quality of network and services rather than price wars.
Some investors could also see an opportunity to merge Sunrise with Orange Switzerland, owned by private equity firm Apax [APAX.UL], some of the sources said, though such a deal has been blocked previously by the Swiss Competition Commission on grounds that it would lead to higher prices.
An IPO would remain an option if CVC does not receive bids that match its price expectations.
(Additional reporting by Sophie Sassard; Editing by David Goodman)