18 October 2006

China Network Agrees to Sell Controlling Stake to MBK
(Bloomberg)

MBK Partners Ltd., a private equity fund formed by former Carlyle Group executives, will buy 60 percent of China Network Systems Co., Taiwan's second-largest cable television provider, for NT$30.9 billion ($932 million).

"The deal was signed yesterday,'' Gary Tsai, vice president of Taipei-based China Network Systems, said in a telephone interview today. He declined to give further details. China Network is owned by News Corp.'s Star Group, which holds a 20 percent stake, and Taiwan's Koos family, which has 80 percent.

MBK's purchase comes amid speculation Taiwan's government will allow the island's four major cable TV networks to boost revenue by delivering extra services such as digital television and high-speed Internet. Currently, 6.5 percent of cable subscribers have digital television, compared with more than 90 percent in Hong Kong.

"It may work for MBK if CNS, under its control, can deliver a well-executed broadband strategy and it can capitalize on the `promise' of new regulatory environment to deliver digital pay-TV growth,'' said Vivek Couto, executive director of Media Partners Asia Ltd. in Hong Kong.

Nelson Chang, president of China Network and vice chairman of Koos-controlled Taiwan Cement Corp., a minority shareholder of China Network, was unavailable for comment.

The deal and purchase price were reported by the Economic Daily News earlier today.

New Services

Taiwan's National Communications Commission will probably ease rules that currently hamper cable TV companies' ability to set prices and introduce new services, China Network's Tsai said in an interview on Sept. 15.

Taiwan had the second-highest cable and satellite television penetration rate in Asia with 88 percent at the end of last year, behind South Korea with 92 percent, yet average revenue per user was ninth highest at $17.07, according to figures compiled by Media Partners.

Relaxation of rules will allow cable television providers to set their own prices and roll out cable Internet services which could boost profitability.

Taiwan operators could achieve operating margins as high as 60 percent for their cable Internet businesses, based on similar margins elsewhere in the region, according to Couto. China Network's overall margins are 47 percent compared with 56 percent for Taiwan Broadband Communications, which Australia's Macquarie Media Group bought in December for A$1.19 billion ($898 million).

China Network's average revenue per user was NT$578 last year, less than that of Taiwan Broadband and Eastern Multimedia Co. China Network had 1.01 million customers at the end of June, behind Eastern Multimedia with 1.08 million and ahead of Taiwan Broadband, which had 658,000.

MBK Partners is a buyout group formed last year by five former Carlyle executives led by Michael Kim, who was previously Carlyle Asia chairman.

--With reporting by James Peng in Taipei. Editor: Wong