INVESTMENT STRATEGY Carlyle's cross-selling coup

Amid the credit drought, it may well be that acquiring minority stakes is more de rigeur for private equity firms than taking control over a business. However, following fashion is not the reason cited for the Carlyle Group's decision to cede control of Taiwanese cable television provider Kbro in a share swap that sees it assume a 15.5 percent interest in telecommunications company Taiwan Mobile, in which it becomes the second-largest share-holder and takes two board seats.

Instead, Carlyle is seeking to exploit cross-selling opportunities between Taiwan Mobile's wireless users and Kbro's cable subscribers. This follows a global trend in which the telecoms and cable industries have become virtually indistinguishable as selling customers “bundled” telephone, cable and internet packages has become commonplace. Combining Kbro's subscriber base with Taiwan Mobile's existing business makes the company the largest cable TV provider in its home country, overtaking China Network Systems (incidentally, a company backed by private equity firm MBK Partners).

Carlyle acquired Kbro (then known as Eastern Multimedia Co) for an undisclosed sum in 2006 from its Carlyle Asia Partners II fund, which closed on $1.8 billion in July of that year. The latest deal sees its equity valued at around $1 billion and includes the assumption of approximately $800 million in debt by Taiwan Mobile. It has been reported that Taiwan Mobile may seek to sell corporate bonds or sign a syndicated loan as ways of reducing the interest burden on this debt.

The deal is expected to take around nine months to officially close, following shareholder and regulatory approvals.

Carlyle is currently in the market with its third Asian buyout fund, having raised a little over $2 billion towards its reported target of around $3 billion. In June, the firm closed Carlyle Asia Growth Partners IV on $1.04 billion. It is also raising its second Asian real estate fund, which has a target of $1 billion.