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TVB Goes Country

Country Garden (2007) chairman Yeung Kwok-keung has secured a 26 percent stake in Television Broadcasts (0511) by paying Shaw Brothers (0080) - the largest shareholder in the TV station - more than HK$10 billion.

The offer trumped that made by competing bidders, US-based private equity groups Blackstone and Carlyle. Sources close to the deal say Run Run Shaw, chairman of TVB, Hong Kong's most popular TV channel, was determined not to sell the company for anything less than HK$10 billion. Another reason the 100-year-old Shaw agreed to the stake sale is that he believed Yeung, who is well-connected in China, would be able to help the company overcome hurdles in penetrating deeper into the mainland market, thus taking it "to a higher level."

Yeung has amassed funds for the acquisition with help from Lee Shau-kee, chairman of Henderson Land (0012), who loaned HK$3 billion to Yeung to finance his takeover. Lee stressed that none of his loan to Yeung would be converted into shares of the TV station, as the billionaire said "I do not do business I am not familiar with."

Yeung has also used part of his daughter's shares in Country Garden, a Chinese property developer founded by him and listed on the Hong Kong stock exchange last year, as collateral to facilitate his borrowing from Lee.,Yeung transferred his shares in Country Garden, worth almost HK$6 billion based on yesterday's close, to his 26-year-old daughter last year. The daughter has officially taken the mantle as one of the top 3 richest woman in the whole of China.

Adpoting a plan of leveraged buyout, or using assets from the acquisition target to finance borrowing, Yeung also mortgaged the 26 percent stake in TVB to collect a further HK$4.8 billion. That's what I don't like about the deal. Yeung has borrowed from Henderson and mortgaged the shares he bought to secure the deal. That can only mean that adveritsing rates will go up, the TVB stars' pay packages will be very tight in the future (which may lead many to do more mainland Chinese or Taiwanese serials instead). I don't know where you can slash the cost side, you can only try to improve on the revenue side - and that is something Yeung has little clue on. You rock the boat on pay, contract terms with artistes and writers, advertising revenue sharing, salaries - you lose TVB's assets, the people ... and thats where 90% of the value of TVB resides.

You buy Manchester United at a premium, at least you can raise ticket prices and sell more shirts or tour more countries. You buy TVB at a premium and on leverage, what will you do, what can you do ... ask the stars to help sell your Country Garden properties?


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