Taiwan regulator postpones decision on CNS deal
The Taiwan government has declined to approve the acquisition of cable television provider China Network Systems (CNS) by Morgan Stanley Private Equity Asia (MSPEA) and Far EasTone Telecommunications, asking the National Communications Commission (NCC) to reconsider certain elements of the deal.
The Fair Trade Commission approved the transaction last December and the NCC followed suit in January. However, the Investment Commission under the Ministry of Economic Affairs - the final arbiter - said in a statement that it was uncomfortable with the deal structure. The concern is that it could result in Far EasTone taking control of CNS.
Last year, MSPEA and Far EasTone agreed to acquire CNS from MBK Partners for an enterprise valuation of $2.3 billion, including around $1.6 billion in debt. MSPEA would take equity ownership of the company, with Far EasTone subscribing to a bond of up to NT$17.12 billion ($542.6 million).
The structure is significant because government agencies hold a minority stake in Far EasTone and the government, political parties and the military are currently barred from investing in media companies. Should the restriction be lifted at some point in the future, Far EasTone could theoretically convert the bond to equity with a view to taking control of CNS.
In the past week, several politicians have criticized the government for not conducting a second review of the deal. The NCC was reconstituted after the Democratic Progressive Party came to power in May, but Presidetn Tsai Ing-wen reportedly said the decision made earlier in the year is still valid.
CNS is Taiwan's largest cable operator, providing cable and digital television, broadband internet and other services to nearly 1.29 million subscribers. Far EasTone is interested in integrating these wired solutions with its own wireless offerings and expand into the smart home market.
MBK announced the acquisition of CNS for $1.5 billion - including $840 million in debt and equity participation from co-investors - from Koo's Group and Star TV in October 2006. Exiting the asset has proved complicated, with sales to Want Want China Holdings and Ting Hsin International Group both falling through.
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