Bain, Permira Said to Be Among Final Bidders for China Network

Bain Capital LLC and Permira Advisers LLP were among investors picked by MBK Partners Ltd. to make final bids for Taiwan's second-biggest cable-television operator in a deal worth at least $2 billion, four people with knowledge of the matter said.

Potential buyers must submit binding offers for closely held China Network Systems Co. by late September, the people said, asking not to be identified because the talks are private. Macquarie Group Ltd. has also been invited to make a final bid, one of the people said.

MBK, the private equity fund founded by ex-Carlyle Group executives, is selling China Network after Taiwan's benchmark stock index gained 15 percent in the past year, outperforming shares in Hong Kong and China. MBK may opt to sell the company to Taiwanese buyers as getting regulatory approval might be easier, one person said.

"The cable industry here has stagnant growth and will face more competition as the government is loosening rules to allow inter-regional operations," said Vincent Liao, a Taipei-based analyst at KGI Securities Co. Bidders for China Network "are eyeing the cash flows of the business, which are still quite steady."

Washington-based Carlyle plans to sell its stake in China Network's larger rival as Taiwan's government seeks to boost competition in a market where the two largest operators have more than 40 percent of all customers between them.

MBK solicited bids from Ruentex Group, whose businesses range from textile to construction, and Want Want China Holdings Ltd. Chairman Tsai Eng Meng, according to the person.

Valuation

Michael Kim, an MBK founding partner, didn't respond to calls seeking comment. Paul Scanlon, a Hong Kong-based spokesman at Macquarie, declined to comment, as did senior officials at Permira and Bain Capital. Tsai, the Want Want chairman, and Ruentex Industries Ltd. spokesman Hsu Chih Chang weren't immediately available.

A price of $2 billion represents about 10 times China Network's estimated 2010 earnings before interest, taxes, depreciation and amortization, the people said. MBK may push for a valuation of as much as 12 times earnings on that basis, two of the people said.

MBK agreed in October 2006 to buy 60 percent of China Network for NT$30.9 billion, or $932 million at that time's exchange rate. Taiwan's Koo's family owned 80 percent of the company at the time. MBK now effectively controls all of China Network, the people said.

Carlyle Sale

Taiwan, with 7.8 million households, has 5 million cable TV subscribers. China Network had 1.05 million subscribers at the end of 2009, giving it a 21 percent market share, while Kbro Co., Taiwan's biggest cable TV operator, had a 22 percent share with 1.11 million customers, according to a Taiwan's National Communications Commission report published last month.

Carlyle, the world's second-biggest private equity firm, is selling its stake in Kbro to Taiwan's Tsai family after investing in the business in 2006, people with knowledge of the matter said last month.

Funds linked to Sydney-based Macquarie Group bought smaller cable-TV operator Taiwan Broadband Communications in 2005 from Carlyle, and sold a partial stake the following year.

Far EasTone Telecommunications Co., Taiwan's third-biggest telephone operator, isn't involved in talks with MBK and plans to focus on its wireless business, Alison Kao, a spokeswoman for Taipei-based Far EasTone, said by telephone yesterday.

The Financial Times reported in July that Far EasTone was among potential bidders for MBK's stake in China Network.