Deal focus: CNS promises PE watershed in Taiwan

The agreed sale of China Network Systems (CNS) for $2.3 billion, including around $1.6 billion in debt, comes after two previous deals fell through. But MBK - which paid $1.5 billion for CNS in 2006, including $840 million in debt and equity participation from co-investors - has still made money. There have been dividend recaps in addition to the impending exit to Morgan Stanley Private Equity Asia (MSPEA) and Far EasTone Telecommunications.

The deal is significant in several respects. First, assuming the transaction goes through (regulatory approval has yet to be granted), it will be Taiwan's first PE buyout of reasonable size since 2010. In the interim, there has been a crisis of confidence as the PE industry looked to the Taiwan authorities for greater transparency and certainty on the investment approval process, but to no avail.

It remains to be seen whether promises of change have a lasting effect, but C.Y. Huang, chairman of FCC Partners and founding chairman of the Taiwan M&A & Private Equity Council, believes a series of factors are generating forward momentum. "The government's attitude towards PE is changing," he says.

One factor is the Chinese government's willingness to support companies as they go overseas. The CNS deal is entirely domestic but Huang argues that it reflects a growing maturity within corporate Taiwan. Previously companies were reluctant to team up with private equity, but Far EasTone is working with MSPEA as it looks to capitalize on digital convergence.

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, it is an opportunity to integrate these wired solutions with its own wireless offerings and expand into the smart home market.

MSPEA will take equity ownership of CNS through its fourth pan-regional fund, with Far EasTone then subscribing to a bond of up to NT$17.12 billion ($542.6 million). The deal structure is in itself innovative, Huang adds. There are restrictions on capital from political or military sources taking equity in media groups and Far EasTone's shareholder base includes funds of this description. "This is a roadblock that kills many deals," Huang says, but a debt-based structure gets around the problem.

MSPEA and Far EasTone are also less likely to suffer the fate of CNS' previous two would-be buyers. First Want Want China Holdings was blocked for anti-monopoly reasons and due to concerns about its founder's supposed pro-Beijing sympathies. Then food conglomerate Ting Hsin International Group's bid was ended by a tainted cooking oil scandal that has set back its entire business.

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