A merger to create Taiwan’s biggest cable company could founder because of a government shareholding in one of the major investors.

 

Cable operator kbro announced last September that it would merge with Taiwan Mobile in a $1 billion share swap driven by its biggest shareholder, equity firm the Carlyle Group.

 

But the new structure could be in breach of local media rules, which forbid government investment in media firms. Fubon Financial Holdings, Taiwan Mobile’s biggest direct and indirect shareholder, is partially owned by the Taipei City Government.

 

Fubon bought the then government-owned bank in 2002 and the two merged in 2005, with the bank taking two seats on Fubon’s board.

 

Under the proposed deal, Carlyle would swap its majority stake in kbro for 15.5% of Taiwan Mobile. The new cable player would have 1.5 million subs, or 32% of the market.

 

The deal requires the approval of the National Communications Commission (NCC), the Fair Trade Commission (FTC) and the Investment Commission.

 

The new entity’s market share is understood not to be an issue for regulators, but for the NCC the Taipei City government shareholding certainly is, a source close to the situation told telecomasia.net.

 

Historically, most Taiwan free-to-air TV has been government-owned, but recent laws have required the networks to divest themselves of state shareholdings.

 

The kbro board is expected to meet this week to discuss the issue.