MBK’s-struggle-to-exit-D’Live

Can Korean private equity fund sell cable TV operator?

MBK Partners is the biggest private equity fund in Korea by any measure. Since its establishment in 2005, the Seoul-based fund has racked up handsome profits through a series of high-profile investments.

Over the past year, for example, the business bellwether successfully exited Orange Life, a life insurer, last September and Coway, a water purifier rental business, this March with a substantial payday.

But not all of its investments led to huge profits. Sometimes, MBK struggled to find its feet as amply demonstrated by Young Hwa Engineering, a producer of steel and metal structures that entered court receivership in 2016.

D’Live, the country’s No. 3 cable TV operator, has been another headache of MBK, which was founded by Chairman Michael Byung-ju Kim. The buyout fund acquired it in 2008 for 2.2 trillion won ($1.8 billion).

Over the past decade, MBK languished to unload D’Live, which has been a big problem for the fund as it mostly financed the purchase with debts.

Topping other things off, the country’s cable TV business has faltered due to internet protocol TV and online-based services including YouTube and Netflix, which chipped away at the bottom line of D’Live.

D’Live netted more than 30 billion won ($26 million) in profits in 2010 but it suffered a loss last year for the first time after MBK’s investment.

During the period, its operating profit ratio also more than halved from higher than 20 percent to less than 10 percent.

After going through decade-long darkness, however, MBK seems to find a silver lining.

Early this year, LG Uplus gobbled up CJ HelloVision. The former is Korea’s smallest mobile carrier while the latter is the nation’s primary cable TV operator.

LG Uplus’s bigger competitor SK Telecom followed suit by snapping up No. 2 cable TV player T Broad. The two deals are subject to reviews of the Fair Trade Commission.

Against this backdrop, KT, the second-largest wireless carrier, also vies to join the M&A wave and the only target available is D’Live. Finally, MBK may be able to find a new owner of the pay TV firm.

Potential hurdles

But KT might back off because the National Assembly thinks of introducing regulation of preventing any pay TV operator from having market share higher than 33 percent.

With almost 10 million customers, KT already accounts for more than 30 percent of the market. The acquisition of D’Live whose user base tops 2 million would raise the former state monopoly’s market share to some 37.5 percent.

A similar three-year sunset law expired midway through 2018, but some assemblymen attempt to reinstate it.

Even if KT is allowed to acquire D’Live, the two sides are not likely to easily agree on the price.

The seller would want to get at least 1 trillion won ($850 million), but the buyer would not want to pay that much. The price would be in the range of 800 billion won ($680 million) and 1 trillion won ($850 million),” Yuanta Securities analyst Choi Nam-kon said.

And there are so many complications. Some believe that the disposal of D’Live is on the hands of creditors, not MBK.”

In other words, MBK would have to accept a substantial loss even under the best-case scenario. Shinhan Bank and KEB Hana Bank lead creditors of MBK and D’Live.

Some even say that the price may be much lower.

By purchasing cable TV companies, SK Telecom and LG Uplus can raise their customer base and complement their incomplete fixed-line infrastructure,” said a former government bureaucrat who asked not to be named.

But KT has a complete wire-line infrastructure. Hence, cable TV operators are less attractive to it. I think that KT does not have to buy D’Live if the price is higher than 500 billion won ($430 million).”

Comments from MBK representatives were not available.