MBK Kicks Off Sale of CNS, Gala TV

(Reuters) – First-round bidding for MBK Partners LP’s stake in China Network Systems Co Ltd (CNS) and Gala Television Corp (Gala TV) has started, marking MBK’s exit from Taiwan’s cable TV industry.

Private equity house MBK, which invested in cable TV multiple systems operator (MSO) CNS in July 2007 and cable TV content provider Gala TV in December 2008, has mandated Morgan Stanley (MS.N) and Barclays Capital as financial advisers for the sale of CNS and Gala TV, respectively.

Among bidders for CNS are Samuel Yin, chief executive of Taiwan’s conglomerate Ruentex Group, and Australia-based Macquarie Group (MQG.AX), which also has a stake in top-tier MSO, Taiwan Broadband Communications Co Ltd (TBC).

Bain Capital, Blackstone Group LP (BX.N) and Providence Equity Partners are also looking at the CNS sale, as previously reported.

Three investors including Japanese conglomerate Sumitomo Corp (8053.T) and a U.S.-based private equity firm are vying for MBK’s stake in Gala TV.

The result of the first-round bidding for CNS is expected to be announced in early August. Shortlisted bidders will then enter into a second-round bidding stage, according to a source familiar with the situation.

The winning bidder for Gala TV is expected to be chosen in early August.

“It is unlikely that there will be second-round bidding for the Gala TV sale as the transaction price is not that large. The Gala TV stake is likely to be worth less than T$10 billion ($311.7 million) , while the CNS sale could fetch more than NT$30 billion,” the source added.

FINANCINGS IN THE WORKS

While bidding is in process, the two financial advisers have started sounding banks in Taiwan on their interest in arranging financing totalling about NT$38 billion for the two transactions.

Morgan Stanley has talked to Taiwanese banks about arranging a staple financing for the winning bidder of CNS.

Financing could total NT$35-40 billion ($1.1-1.2 billion) based on CNS’ 2009 EBITDA of NT$5.337 billion and a debt-to-EBITDA ratio of around seven times.

As for the financing for Gala TV bidders, the deal size is expected at about NT$3 billion ($80 million), based on Gala TV’s 2007 EBITDA of around NT$660 million and a debt-to-EBITDA ratio of around four times.

“The CNS loan is quite highly leveraged. Acquisition loans in Taiwan on average have debt-to-EBITDA of five to six times only. Banks are unlikely to accept that unless the financing comes with rich pricing or more stringent financial covenants,” said a senior banker at a Taiwanese bank. ($1=32.08 Taiwan Dollar) (Editing by Chris Lewis)