19 September 2006
TPG-Newbridge, MBK Seek NT$35 Billion
Loans for Taiwan TV Bid
Bloomberg, New York
By Tim Culpan and Patricia Kuo
Sept. 19 (Bloomberg) -- Buyout firms including TPG- Newbridge
and MBK Partners may borrow as much as NT$35 billion ($1.1 billion) as they
compete to buy Taiwan's China Network Systems Co.
The firms are seeking between NT$30 billion to NT$35 billion of seven-year loans
from international and local lenders for their bids to buy the cable-television
operator, said three bankers involved in the deal who declined to be named before
a sale agreement is signed. The financing would fund from 70 to 75 percent of
the purchase price, the bankers said.
Buyout funds have spent $2.4 billion acquiring two of Taiwan's three biggest
broadband and media companies since December, more than half of all takeovers
by overseas companies on the island in that time, data compiled by Bloomberg
show. Investors are betting cable operators will introduce new technology and
services to boost earnings and attract customers.
The owners of China Network Systems, the Koo's Group and News Corp.'s Hong Kong-based
Star Group Ltd., want to complete the sale by the end of 2006, the bankers said.
The Koo family sold its mobile operator KG Telecommunications Co. to rival Far
Eastone Telecommunications Co. for NT$45.1 billion in cash and stock in April
2004.
China Network Systems was formed in May 2001 as a venture 80 percent owned by
the Koo's Group, whose businesses include Taiwan Cement Corp. and China Synthetic
Rubber Corp. Star Group invested $240 million for a 20 percent stake.
1.14 Million Subscribers
The cable operator had 1.14 million subscribers at the end
of last year. It also had 30,000 cable Internet subscribers with only 50 percent
of its network upgraded to provide broadband Internet. In 2005, the company
had NT$8.21 billion of sales and NT$3.84 billion of earnings before interest,
tax, depreciation and amortization, according to data compiled by Hong Kong-based
research company Media Partners Asia Ltd., which provided market analysis to
some of the bidders.
Taiwan's cable TV operators are hampered by restrictions imposed by the central
and local governments on pricing and introducing new services, said Gary Tsai,
a vice president at China Network Systems, in a telephone interview Sept. 15.
The operators are only allowed by the National Communications Commission to
sell digital television content on a channel-by-channel basis rather than in
bundled packages.
``The current regulation doesn't allow them that much room to move on digital cable television,'' said Vivek Couto, an executive director at Media Partners in Hong Kong.
Higher Margins
Operators can boost revenue through cable broadband Internet
services while the introduction of higher-value digital television services
are hampered by regulations, Couto said in an interview.
``You can develop broadband Internet without deregulation, you can offer it
alone or bundle it with analog or digital television,'' he said.
Taiwan's operators may be able to achieve operating margins as high as 60 percent
for their cable Internet businesses, based on similar margins elsewhere in the
region, Couto said. China Network's overall margins are 47 percent compared
with 56 percent for Taiwan Broadband Communications, which Australia's Macquarie
Media Group bought in May for A$1.19 billion.
Overseas companies have spent $4.2 billion since December buying Taiwanese assets,
according to data compiled by Bloomberg. Announced global acquisitions of cable
television operators this year have reached $10 billion, the data show.