MBK Taiwan

MBK sees CNS exit for about $2.4b after aborted effort

MBK is selling its 60% stake in Taiwan’s biggest cable TV broadcaster at the second attempt after tussles with the regulator; a salutary lesson in the risks of Asian deal making.

MBK Partners is selling its 60% stake in China Network Systems (CNS) for about $2.4 billion including debt to Taiwan’s Wei family, after a protected investment period and a clash with regulators, according to a person familiar with the matter.

The sale to the Wei family, known for their control of noodle-maker Tingyi, still needs regulatory approval but MBK hopes this time it will get the green light.

The deal has been through several twists and turns, including one exit falling through, plans for an IPO and now another sale. “It hasn’t been easy,” said one person involved.

The private equity firm tried to sell CNS to Want Want China Holdings for a similar sum last year but the regulator put paid to that by demanding big disposals from Want Want.

Delays cost funds money, as longer holding periods tend to eat into their rate of return and the deal's IRR is down on what it would have been if the exit last year had gone through.

However, MBK is still set to make a profit despite paying a hefty price at the start. MBK agreed to buy the stake in CNS after a hotly contested auction in 2006 for $1.5 billion in debt and equity.

Since then MBK has taken money out in at least one major recap of the deal and other smaller dividends taken along the way. CNS has about $1 billion in gross debt. During the private equity firm's ownership CNS it has digitized, setting up a broadband from scratch. MBK has invested in the network.

MBK tried to sell the stake in 2010 to rice cake maker Want Want China Holdings for $2.4 billion including debt. Want Want’s chairman Tsai Eng-meng and his media network are vocal supporters of Taiwan’s reunification with China, which upset Taiwanese authorities, a person familiar with the matter has said.

Taiwan’s broadcasting regulator, the National Communications Commission, demanded Want Want make big disposals citing antitrust concerns; which Want Want was unwilling to do.

MBK also mulled an IPO of CNS, which has 1 million cable television subscribers, in Singapore via a business trust.

MBK has learnt its lesson and this time it is selling to a group of whom it believes the regulator will approve. The Wei brothers, headed by Wei Ying-chiao, do not own other media businesses, so no editorial content will be influenced.

The Wei brothers are Taiwanese citizens and will pay for the stake using their own money with involvement by a listed company. The plan is to bring in other equity investors, similar to those in the Taiwan Star 4G wireless services vehicle. There will be no mainland Chinese money involved. The Wei family has committed to buying all the stake and if other investors fall through they will step up for all of it.

MBK has managed to secure a valuation similar to other non-content cable TV transactions in the sector such as Macquarie's sale of ATPP, helped by the fact there was competition for the asset during a relatively informal process. Discussions were held with other major groups such as Hon Hai Precision Industry and Far EasTone Telecommunications, the person said.

MBK is not alone in its travails. Other private equity firms invested in the Taiwanese cable TV industry, attracted by stable cash flows, which could be used to pay down debt. They also became mired.

Carlyle invested in Eastern Broadcasting and Eastern Multimedia (renamed Kbro); Sweden’s EQT Partners bought into Gala Television in 2011 from MBK and exited earlier this year, according to data provider Dealogic.

Carlyle also took two attempts to exit Kbro after the regulator blocked its first choice.

Private equity firms have struggled elsewhere in Asia to sell investments because regulators have actively blocked or discouraged an exit. In Korea US-based Lone Star struggled for more than five years to sell its 51% stake in KEB while Cerberus was trapped in another crisis-struck bank that it had helped turnround, Aozora, for years.

MBK is a Korea-based private equity fund founded by Michael Kim, who was previously head of Carlyle in Asia. However, MBK’s head of Greater China, Kuo-Chuan (KC) Kung, another former partner of Kim’s from Carlyle, is running the deal for MBK.

Morgan Stanley advised MBK while UBS advised the Wei family. 

¬ Haymarket Media Limited. All rights reserved.
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