ZURICH (Reuters) - Sunrise Communications' SRCG.S proposed takeover of Liberty Global's LBTYA.O Swiss UPC business faces a revolt with at least two big investors joining top shareholder Freenet in opposing the 6.3 billion Swiss franc ($6.46 billion) deal, sources said.

FILE PHOTO: The logo of broadband and telecommunications provider UPC Schweiz is seen at its headquarters in Wallisellen, Switzerland February 6, 2019. REUTERS/Arnd Wiegmann

A third was also expressing reservations about Switzerland’s biggest telecoms acquisition, the sources told Reuters.

Germany's Freenet FNTGn.DE, which owns nearly a quarter of Sunrise, has said it will vote against a 4.1 billion franc rights issue Sunrise has proposed to help finance the purchase.

If Freenet finds enough allies, the capital increase may lack the simple majority needed at an extraordinary shareholder meeting that Sunrise would call after the transaction gets anti-trust clearance.

“The deal has to be significantly restructured,” one top-10 Sunrise shareholder said on condition of anonymity. “We would prefer it did not take place at all.”

The dissident shareholders are not convinced by the deal that Sunrise has defended as a path to better compete against Swiss heavyweight Swisscom SCMN.S.

Sunrise’s strength is in mobile, so buying the UPC cable business would bulk up its ability to bundle cell phone, broadband internet, television and landline services as a way to win share in Switzerland’s competitive market.

“The deal makes strategic sense, but the price is wrong,” said a top-20 shareholder, who said he would vote against the capital increase. “The UPC deal hardly creates value while carrying high risks for shareholders.”

Such acquisitions rarely produce the envisioned synergies and often cost more than planned, this shareholder said. “At the moment we assume the deal in its current form has no chance.”

The top-10 investor questioned the strategic logic, noting UPC Switzerland had been shrinking since the end of 2017. In contrast to Sunrise, he did not see a big turnaround soon.

“In our view UPC is still a restructuring case,” he said.

Based on valuations for peers like Belgian cable group Telenet TNET.BR, a purchase price of around 4 billion francs would be appropriate, he estimated.

He also said Sunrise had agreed to assume UPC debt with an average interest rate above what Sunrise would have to pay, saddling it with extra costs.

“Is this transaction necessary at all? We are skeptical,” he said, suggesting Sunrise was better off as a standalone entity that should focus on rolling out new 5G technology that could one day make cable obsolete.

Another investor displeased with the deal said it saw two scenarios: with Freenet refusing to take part, shareholders approve the capital hike that will pour new shares into the market, or else investors block the plan, forcing Sunrise to pay a 50 million franc break fee.

“In addition there is a high probability that Sunrise management leaves” should the plan it has pushed so hard fail, a representative of this shareholder said.

Sunrise finance chief Andre Krause told Reuters he was “very sure” of winning a majority for the transaction with or without Freenet’s backing. Sunrise would meet its top 30 to 50 shareholders over the next three weeks to sound out whether it needed to change the financing plans for the deal, he added.

He said Sunrise was ready to cut the size of the rights issue by at least 1.5 billion francs. Liberty has said it was not prepared to change the agreed sale price.

Top shareholders such as Canadian pension fund CPP, with 5%, and Germany’s Shareholder Value Management declined comment.

Shareholder Value, with a nearly 3% Sunrise stake at the end of July, is also a Freenet shareholder.

($1 = 0.9745 Swiss francs)