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Taiwan Mobile to buy Taiwan Fixed Network

"We hope the acquisition will bring new growth momentum into Taiwan Mobile by expanding to high-margin media business."

Richard Tsai, Taiwan Mobile Chairman

Taiwan Mobile Co (台灣大哥大), the nation's third-largest mobile carrier, yesterday said it planned to acquire fixed-line operator Taiwan Fixed Network Co (台灣固網) in a cash deal worth up to NT$53.57 billion (US$1.63 billion).

The deal would help Taiwan Mobile tap into broadband and higher-margin cable TV businesses, allowing the company to be the second local telecom company to offer mobile, broadband and TV programs over its networks after industry leader Chunghwa Telecom Co (中華電信).

Taiwan Mobile's board yesterday approved a proposal to boost its holding in Taiwan Fixed Network to between 41 percent and 100 percent of the total 6.45 billion shares at NT$8.3 per share via subsidiaries.

Taiwan Mobile holds about 9.95 percent of Taiwan Fixed Network, which owns a 30 percent stake in Taiwan Mobile.

"We hope the acquisition will bring new growth momentum into Taiwan Mobile by expanding to high-margin media business," chairman Richard Tsai (蔡明興) told a press briefing.

Taiwan Mobile projected that the purchase would boost its annual revenues by 19 percent. Last year, the phone company made NT$58.9 billion in revenues.

Moreover, it expected the deal would add 10 percentage points to its margin in earnings before interest, taxes, depreciation and amortization (EBITDA). The EBITDA margin for cable TV is about 56 percent, the phone company calculated.

In addition to its core business, a quarter of Taiwan Fixed Network's total revenues come from fully-owned cable TV unit Pacific Broadband Co (富洋媒體科技).

Pacific Broadband ranks No. 4 in Taiwan's cable TV market with a 10 percent share, or 500,000 subscribers.

The company aims to complete the acquisition during the next 41 days, ending April 11, by buying shares on the open market. Taiwan Mobile planned to pay for the purchase using its own capital and a syndicated bank loan of NT$23.5 billion.

The offer of NT$8.3 per share is a 10.6 percent premium, compared to Taiwan Fixed Network's closing price of NT$7.5 on the Emerging Stock Market (興櫃市場) yesterday.

Taiwan Mobile's shares went down by 0.47 percent to close at NT$31.75 on the Taiwan Stock Exchange.

Taiwan Fixed Network said it had received the offer and was planning to hold a board meeting today at the earliest.

Lu Chia-lin (呂家霖), a telecom analyst with Yuanta Core Pacific Securities (元大京華證券), said he did not expect the synergy to happen soon.

"Pacific broadband and Taiwan Fixed Network have very small market shares," Lu said.

Taiwan Fixed Network has 6 percent of the landline phone market.

Lu expected the purchase would have a negative impact on Taiwan Mobile in the short term as the fixed-line operator would struggle to generate operating profits.
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