Shares of Far Eastone boosted by CNS deal
Shares of Far EasTone Telecommunications Co. ( ) moved higher Friday morning after it clinched a deal a day earlier in preparation to acquire a stake in Taiwan-based cable operator China Network Systems Co. (CNS, ), dealers said.
The buying reflected optimism toward Far EasTone’s business prospects, with the company apparently determined to integrate its telecom network with cable TV services to create applications for the smart home market, they said.
As of 11:09 a.m., shares of Far EasTone had added 4.18 percent to NT$74.70 (US$2.37), with 6.47 million shares changing hands. The weighted index on the Taiwan Stock Exchange was down 0.17 percent at 8,636.44.
“After yesterday’s rebound, the broader market is falling back today,” Ta Ching Securities Investment Consulting analyst Eric Lai said. “So investors rushed to pick up telecom stocks, like Far EasTone, due to their defensive characteristics.”
“The deal which paved the path to acquire a stake in CNS gave investors a strong incentive to buy Far EasTone shares soon after the local bourse opened,” Lai said.
“The deal is helping Far EasTone shares, which had lagged behind the market, to play catch-up on the main board this morning,” he said.
In a news conference on Thursday, Far EasTone announced that it has signed an agreement with Morgan Stanley Private Equity Asia (MSPE Asia) to buy bonds to be issued by MSPE Asia unit North Haven Private Equity Asia IV LP (NHPEA).
NHPEA, which is also owned by several Taiwanese individual and institutional investors, will in turn buy a 60-percent stake in CNS from South Korean private equity firm MBK Partners LP.
Far EasTone said it has reached a consensus with MSPE Asia to control the management of CNS through the acquisition of corporate bonds to be issued by NHPEA.
The bond purchase is expected to cost Far EasTone NT$17.12 billion, and the debt will carry a maturity of seven years.
Because government agencies currently own a 2.89-percent stake in Far EasTone, the company must respect existing regulations that bar political parties, the government and the military from having stakes in media entities.
The bond strategy is expected to help it skirt the regulations.
Far EasTone said that if the ban is lifted, it will directly own a stake in CNS.
The National Communications Commission has proposed the easing of the restrictions to allow political parties, government agencies or the military to own up to 5 percent of a local media company’s equity.
But the bill still needs to be passed by the Legislative Yuan.
“CNS is the largest cable TV operator in Taiwan. The deal shows Far EasTone’s ambitions to extend its reach to cable TV operations and integrate cable TV with its telecom network,” Lai said.
“Although the deal needs to pass regulatory scrutiny, Far EasTone has made the right decision to move into the smart home business. It’s a positive step for the company’s future development,” Lai said.
According to Far EasTone, CNS has 1.29 million customers in Taiwan.