Taiwan Mobile has become the island's biggest pay TV after a merger with cable operator kbro, controlled by private equity firm the Carlyle Group.
In a NT$32 billion ($1 billion) share swap announced September 16, Carlyle has swapped its majority stake in kbro for 15.5% of Taiwan Mobile to create a cable TV player with 1.5 million subs, or 32% of the market. Under the deal Carlyle will become the second largest shareholder in Taiwan Mobile.
The value of Carlyle's kbro stake was not disclosed. Taiwan Mobile said in an investor presentation the transaction would give it direct access to more than one million urban households and offer capex synergies.
It remains the island's second largest mobile operator after Chunghwa Telecom. Taiwan Mobile chairman Richard Tsai said that with the saturation of the island's voice market, the deal "strengthens [Taiwan Mobile's] ability to grow non-voice services and consolidates its long-term competitive strengths." Convergence between mobile, fixed and cable would increase the company's revenue from integrated content, he said.
Carlyle invested in cable firm Eastern Multimedia in 2006 and rebranded it as kbro. The cable operator is chaired by Craig Ehrlich, former chairman of mobile industry group GSMA and a former head of Hong Kong cellco Sunday.
Vice chairman and group CEO is Joseph Fan, a former president of Taiwan Mobile. Goldman Sachs said in a research note the deal was "very synergistic", with no overlaps in franchise areas between kbro and Taiwan Mobile.
In the near- to medium-term, the primary revenue opportunity would be in increasing the cable broadband penetration. In the long-term, we "the main revenue opportunity is in upselling to digital TV once regulations are more supportive." The deal is subject approval by Taiwan Mobile shareholders and Taiwan's Fair Trade Commission and Investment Commission.