Macquarie, Providence Bid for Taiwan’s CNS

HONG KONG (Reuters) – Macquarie Group Ltd (MQG.AX) and U.S. buyout fund Providence Equity Partners are among the parties to have submitted first-round bids to buy China Network Systems Co Ltd from MBK Partners, sources said on Friday, a deal that could value CNS at about $2 billion.

North Asia-focused MBK Partners is selling CNS after buying the asset in 2007 for $1.5 billion. If successful, MBK’s sale would mark the biggest private equity exit in Asia Pacific region this year.

Taiwan conglomerate Ruentex Group had also submitted an indicative bid, while private equity fund Bain Capital may also have submitted a first-round bid, sources said. Bids were due earlier this week, the sources said.

Taiwan’s cable market has among the highest profit margins in the region, some analysts estimate, which is the main appeal of the asset to many private equity funds. A high cable penetration rate of about 80 percent and steady cash flow also makes the industry attractive for investors.

While bankers expect the process to generate strong interest, some are concerned about the stiff asking price.

“It’s a good asset but the price expectations are high,” one source familiar with the process said.

“The asking price is 10 times EBITDA plus, while MBK paid 13 times EBITDA for that,” the source added.

STAPLE FINANCING

Some banks have also spoken to Taiwanese lenders to arrange staple financing for the winning bidder of CNS. The financing size could be NT$35-40bn (US$1.1-1.2bn) based on CNS’ 2009 earnings before interest, tax, depreciation and amoritisation (EBITDA) of NT$5.337bn and a debt-to-EBITDA ratio of around seven times, Basis Point reported last month.

Morgan Stanley (MS.N), which is advising CNS on the auction, declined to comment. MBK officials were not available to comment.

Macquarie and Providence declined comment. Ruentex could not be reached while Bain Capital officials could not offer an immediate response.

The sources declined to be identified as the sale was confidential.

“This will be one of the larger auctions, no doubt. But how many people can get across the finish line, or even take it seriously into the second round, is to be seen,” the source added.

But the sale is expected to find some support from Carlyle Group’s [CRY.UL] sale last month of Taiwan’s largest cable operator Kbro to the controlling shareholder of Taiwan Mobile (3045.TW).

That deal was done at around 11 times EBITDA, sources said, which could help justify MBK’s asking price for CNS.

The planned sale of CNS, along with Lone Star’s [LS.UL] 51 percent stake sale in Korea Exchange Bank (004940.KS), valued at about $3.5 billion, are the two big private equity exits set for Asia this year. (Additional reporting by Stephen Aldred, Faith Hung, Megan Davies and Stephanie Tong) (Editing by Chris Lewis and Jonathan Hopfner)