Private equity firm Carlyle Group will swap its stake in Taipei-based kbro for a 15.5% stake in Taiwan Mobile, through a deal with an estimated transaction value of NT$32.8 billion ($1 billion). Taiwan Mobile is the counterparty in the share swap and will become the majority owner of kbro, which is one of Taiwan's largest cable television operators.
The deal consolidates the operations of the two firms to create the largest pay TV service provider in Taiwan, with over 1.5 million subscribers and an estimated market share of 32%. Taiwan Mobile is one of Taiwan's leading telecommunications operators.
The deal is being transacted at a valuation of 10 times the Ebitda generated by Taiwan Mobile in the 12 months from July 2008 to June 2009. The deal ascribes a value of NT$55 for each Taiwan Mobile share, a 6% premium to its closing share price on September 15. The deal will be earnings-per-share neutral for Taiwan Mobile in 2010.
The gross debt of Taiwan Mobile post-closing will be NT$21.5 billion in term loans and corporate bonds plus another NT$24 billion in short-term borrowings, for a net debt-to-Ebitda ratio of 1.2 times. A specialist described the debt levels as "very conservative gearing". Taiwan Mobile expects to refinance some of the high-cost debt on the books of kbro, post-closing.
The 15.5% stake will make Carlyle Asia Partners (CAP) the second largest shareholder in Taiwan Mobile after its controlling shareholders, Taiwan's Tsai family, who own 18.2%. The Tsai family also controls Fubon Financial, which has interests in financial services and insurance.
Carlyle was earlier an investor in Taiwan Broadband Communications (TBC), which it sold to Macquarie in 2005 for a firm value of $890 million. At the time, Carlyle had owned TBC for six years. In 2007, the Macquarie group consolidated its stake in TBC, with one of the Macquarie funds acquiring a 20% stake which had been sold down to an investor after Macquarie did the 2005 deal.
The investment in TBC gave Carlyle a high degree of familiarity with Taiwan's cable industry.
Carlyle has agreed to a one-year lockup on the Taiwan Mobile shares it is acquiring via the transaction. On an investor call yesterday Carlyle said it has a long-term horizon for the investment and expects to hold the shares beyond the lock-up. Through its investment, "Carlyle expects to continue to support the convergence of mobile and cable services, which will provide additional premium service offerings for consumers," the private equity firm said in a written statement.
Carlyle is getting two board seats on the board of Taiwan Mobile, out of a total board strength of 11. It is also getting "all other rights customary with this kind of minority position", said a source close to the transaction. One of Carlyle's nominees will become vice-chairman of Taiwan Mobile.
J.P. Morgan was the exclusive financial adviser to Carlyle on this transaction.
The deal is conditional upon receipt of regulatory approvals in Taiwan, specifically foreign investment approval and a go-ahead from the Fair Trade Commission. "Regulatory approvals in Taiwan can be unpredictable, but prima facie approvals for this deal should be straight forward," said a specialist.
Carlyle Asia Partners' first private equity investment in Taiwan was in Taiwan Broadband Communications in 1999 when there was no integrated cable operator in Taiwan. The financial sponsor has been an investor in kbro, which was earlier named Eastern Multimedia Company, since July 2006. Carlyle Asia Partners is also an investor in two other Taiwanese firms, Ta Chong Bank and Eastern Broadcasting Company. Carlyle closed its fourth Asian growth capital fund, Carlyle Asia Growth Partners IV, in July, raising a total of $1.04 billion in commitments.
