By Kim Hyun-bin, Kim Yoo-chul
Korea's top three carriers will be competing for acquiring controlling stakes in D'Live, as SK Telecom, KT and LG Uplus were confirmed to have all submitted letters of intent (LOI) for the acquisition of the local TV operator.
“Following SK Telecom's submission of its LOI to Bank of America Merrill Lynch, the lead manager of the D'Live deal, which is now up for sale, SK's rival KT and even LG Uplus each submitted LOIs,” a source familiar with the matter said on condition of anonymity, Tuesday.
D'Live is the country's No. 2 cable TV operator. The sale price of D'Live is estimated at between 900 billion won and 1 trillion won. The source said KT and LG's late-coming grabs for a D'Live deal could be interpreted as their possible “Plan B” in case of a failure to acquire Hyundai HCN, for which the carriers also participated in the bid.
Regarding the latest updates, a KT spokesman said the company was “reviewing the possibility” of chasing the deal. While LG Uplus has acquired CJ HelloVision and SK Telecom received approval from the country's top telecom regulator to complete its acquisition of T-Broad, KT has yet to see substantial progress toward completing the D'Live deal, which it has long been pursuing.
Considering estimated financial burden with the telecom firm seeing a new CEO, KT has shifted its focus to purchasing Hyundai HCN, which is relatively cheaper than D'Live.
Another reason that KT has put its D'Live bid on hold relates to the Fair Trade Commission's order to take “corrective action” by the end of 2022 to limit price hikes and ensure consumers continue to have choices. The order includes a ban on increasing prices by more than the rate of inflation.
But it's unlikely LG Uplus will remain active in following the D'Live deal due to its spending on CJ HelloVision, according to analysts. “Uplus is now the country's No. 2 pay TV operator thanks to the CJ acquisition. If SK Telecom makes its push for D'Live or Hyundai HCN happen, that will hurt LG's share in the local pay TV market. Unlike KT, LG is less desperate in the D'Live bidding,” an official said.
In 2008, MBK Partners teamed up with Macquarie to establish KCI, a special purpose company (SPC), for the acquisition of D'Live. The private equities later attempted to sell their stakes in D'Live in 2015. However, the attempts failed. Despite financial assistance from creditors, a second attempt in 2016 was also in vain.
As of last year, the net debt of D'Live was some 388 billion won with the amount of short-term borrowings D'Live should pay back within a year exceeding over 47 billion won. In 2019, D'Live reported 63.8 billion won in losses.
Carriers are busy to increase their share in the growing local pay TV market through mergers and acquisitions. While the government has adopted strict regulations in the TV market in the past, there is a growing consensus among lawmakers to ease restrictions because of competition among global streaming services, including YouTube and Netflix. In January 2019, the Ministry of Science and ICT told the National Assembly that the 33 percent market share limit was no longer necessary in the pay TV sector.
Government regulations prohibiting TV operators from obtaining over a third of the market have expired and there are no legal risks if SK Telecom, KT or LG choose to acquire local TV operators at this time.