MSPEA, Far EasTone abandon bid for Taiwan's CNS

More than 18 months ago, 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). According to a Far EasTone filing, the three parties have agreed not to proceed with the deal.

The structure of the arrangement between MSPEA and Far EasTone was 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.

Taiwan’s Fair Trade Commission approved the transaction in December 2015 and the National Communications Commission (NCC) followed suit in January of last year. However, last September the Investment Commission under the Ministry of Economic Affairs – the final arbiter – asked the NCC to reconsider certain elements of the deal, saying it was uncomfortable with the structure.

Around that time, several politicians criticized the government for not conducting a second review of the deal, given the NCC was reconstituted after the Democratic Progressive Party came to power in May 2016.

Statements issued by CNS and Far EasTone both expressed dissatisfaction with the approvals process, noting the disruption caused by the change in government as well as repeated rumors surrounding the case. “We expect the Taiwan government to provide a more transparent and predictable foreign investment environment in the future,” Far EasTone said, criticizing the regulations for restricting investments in cable TV and limiting the development of the media industry and the digital economy.

Furthermore, Far EasTone suggested a past inconsistency in the application of these regulations. It noted that Tsai family, which controls Fubon Financial Group, acquired Kbro from The Carlyle Group in 2010 in a private capacity; a previous exit attempt to Taiwan Mobile had failed to win approval. Last year, the vice chairman of Hon Hai Group acted in a personal capacity to buy Taiwan Broadband Communications – which was listed in Singapore by Macquarie in 2013 – in what was also seen as a move to avoid regulatory oversight.

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 for different reasons.

MBK has taken money out of the business with distributions of $414.2 million as of March 2016, following several leveraged recaps. Prior to a $146.8 million recap in 2015, the private equity firm had already returned more than the original equity commitment from its debut fund. A full exit to MSPEA and Far EasTone was expected to generate an overall multiple of 2.94x and an IRR of 15.7x.

MBK achieved a first and final close on its fourth North Asia-focused buyout fund at $4.1 billion last December.

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• Topics
• Greater China
• Media
• Buyouts
• Trade sale
• Regulation
• Taiwan (China)
• Morgan Stanley Private Equity Asia
• MBK Partners