Taiwan Mobile Co (台灣大哥大), the nation’s second-largest telecom operator, yesterday said it would acquire a majority stake in the nation’s No. 2 cable TV system operator, Kbro Co (凱擘), by purchasing the Carlyle Group’s holdings for NT$32.8 billion (US$1 billion), in an effort to boost its presence in the cable TV market.
The two companies reached the deal yesterday, which would triple Taiwan Mobile’s market share to approximately 32 percent and allow it to overtake China Network Systems Co (中嘉網路) as the nation’s biggest cable system operator.
“We are very bullish about the development of the cable TV business, including digital and interactive TV. Taiwan Mobile has a small number of cable TV subscribers. The combination with Carlyle [Kbro] will provide a better platform for digital convergence,” Taiwan Mobile chairman Richard Tsai (蔡明興) told a media briefing.
Taiwan Mobile will have a combined 1.6 million cable TV subscribers after absorbing Kbro, which has 12 cable TV networks and about 1.1 million subscribers as of June. The country has about 4.6 million cable TV subscribers in total.
Under the agreement, Taiwan Mobile will acquire a majority stake in Kbro by issuing 589 million treasury shares and paying NT$440 million in cash to Carlyle. The offering price will be about NT$55 per share, 4.6 percent higher than Taiwan Mobile’s closing price of NT$52.50 in Taipei trading yesterday.
The two companies declined to comment on how big the majority stake represents.
Taiwan Mobile will also assume a debt of NT$24 billion from Kbro, which generates about NT$6 billion in cash flow a year.
After the transaction, Carlyle will own a 15.5 percent stake in Taiwan Mobile, making it the second-biggest shareholder of the telecom company after Tsai’s family.
The two sides expect to close the deal by the end of the year at the earliest.
Carlyle Group purchased a majority stake in Kbro, which used to be known as Eastern Multimedia Co (東森媒體科技), for NT$47.6 billion three-and-a-half years ago.
“We are committed to invest in Taiwan’s cable TV business. This is not [an] exit from Taiwan cable TV market,” said Gregory Zeluck, managing director at Carlyle.
After absorbing Kbro, Taiwan Mobile expects the cable TV business to account for a bigger portion — more than 25 percent — of its overall cash flow, compared with 8 percent now, company financial executive Rosie Yu (俞若奚) said.
Wireless business will still be the largest cash contributor, Yu said.
“This is quite a good deal. Cable TV system operators make more profits than telecom operators,” Yu said.
Citigroup said the deal would make a constructive contribution to Taiwan Mobile and upgraded its stock rating to “buy” from “sell,” with a price target of NT$60.
“We see positive earnings revision momentum hereon for this story as well,” Citigroup analyst Anand Ramachandran said in a client note yesterday.
“We see the deal driving a stronger positioning for Taiwan Mobile in the Taiwanese telecom market now,” the report said.
Taiwan Ratings Corp (中華信評) said its ratings on Taiwan Mobile would not be immediately affected by the company’s planned purchase of the cable TV assets from Carlyle, it said in a statement.
Meanwhile, the National Communications Commission (NCC) said yesterday it would conduct a review of the deal and might consider holding a hearing on the case, because it involves the integration of a telecom carrier and a cable TV service provider.
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