The drama of who will buy Taiwan’s China Network Systems (CNS) has been playing out for almost four years. 

CNS is the largest provider of cable TV and broadband in Taiwan, the most entrenched cable market in Asia. 

A happy resolution for CNS's protracted sale is finally in the works. Ting Hsin International Group is buying a 60% stake from private equity firm MBK for ~US$2.4 billion, about the same valuation that local conglomerate Want Want proposed in its ill-fated bid for CNS back in 2010.  

Ting Hsin beat two major bidders for CNS: Hon Hai Group, which owns electronics giant Foxconn, and Far Eastern Group, which owns mobile network Far EasTone.

Ting Hsin is backed by the wealthy Chien family, which has its roots in southern Taiwan. The group controls Hong Kong-listed Tingyi Holding Corp, the maker of Master Kong instant noodles and beverages, as well as Taiwan Star Cellular Corp, which launched 4G services earlier this week.

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The logical drivers of the deal are anchored to synergy and diversification.

Global media consolidation has long been characterized by telcos taking over cable companies, with the focus on the much hyped and often overrated concept of convergence.

In recent years, Taiwan’s second-largest cable and broadband provider, Kbro, has been acquired by the Tsai family, owners of Taiwan Mobile. In Japan meanwhile, KDDI has assumed control of the country’s largest cable operator, J:Com. 

Telcos are also eyeing last mile cable businesses in India, Korea, Thailand and Vietnam.

Some of the attraction lies in the inherent value of cable’s fixed network. Extra capacity is useful for mobile players looking to support rapid expansion of next-generation services.

Ting Hsin's Taiwan Star is aggressively targeting a 20% share of Taiwan's future 4G market, giving consumers unlimited data plans for 24 months, in contrast to six months offered by incumbent telcos. Taiwan Star claims 85% population coverage for its 4G network, and is aiming for 100% by next year. 

In addition, cable’s arsenal of consumer services, embracing both video and fixed broadband, lets mobile operators retail attractive bundles to customers.

In theory, CNS could bundle Taiwan Star’s 4G services into a quad-play offering that also includes digital cable and broadband. The same logic could work for Taiwan Star. 

However, practical benefits from bundling and synergy take time to translate into growth and profit, or sometimes fail to arrive due to barriers in execution. In Japan, J:Com has yet to experience significant upside since being integrated with KDDI, for example.

Perhaps more practical is the commercial pull of diversification (Ting Hsin is keen to move into lifestyle-related industries), coupled with the benefits of owning a cash-generative utility.

Taiwan’s cable industry falls into this basket, with high profit margins and fixed costs from a 78% cable TV penetrated market. For cashed-up local conglomerates, this makes the island's leading cable networks a common sense bet.

According to industry analysts Media Partners Asia (MPA), Taiwan’s cable industry generated more than US$1.5 billion in revenues in 2013, up 2.6% year-on-year, with 83% coming from cable TV services and 17% from broadband and telephony.

In the future, continued uptake of digital cable and broadband bundles relies on a slowly improving economy, anchored heavily to demand cycles in the US and China.

This should help grow digital cable penetration to almost 75% of total cable TV subs by 2018 versus 38% in 2013, according to MPA. Cable’s share of the fixed broadband market should remain steady, at about 20%. 

In terms of revenue growth, this translates to a 2.9% CAGR in cable TV subscription between 2013 and 2018.

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The deal awaits regulatory approval from key authorities, although policymakers and local industry players are likely to be happy with Ting Hsin as CNS’s ultimate owner. 

The group is a quiet player on the public stage, in contrast to some of its noisy and opinionated counterparts, and able to comply with Taiwan's regulations, on foreign and Chinese investment as well as ties to political parties and other media companies. 

Cable industry counterparts such as Kbro and TBC are generally comfortable that a rational buyer is entering the market with a commitment to invest in digital TV and broadband.  

Meanwhile, the valuation implied by the deal is healthy, at 9.8 times what CNS is expected to generate in Ebitda this year (FYE Dec. 2014). 

This falls neatly into the 9-12x Ebitda valuation range for cable industry deals in Taiwan between 2006 and 2012, underlining the value retained by a mature cable sector.