GEO Investing

On 10/9/2014, China Digital TV Holding Co.(NYSE:STV) reached a definitive agreement with Shanghai Tongda Venture Capital Co. Ltd (SHA: 600647) wherein, under the agreement, Tongda Venture agreed to purchase 100% equity interest of Beijing Super TV Co., Ltd, which is a wholly-owned subsidiary of Golden Benefit (Golden Benefit is a STV’s wholly-owned subsidiary incorporated in Hong Kong). The Total consideration of this transaction would be RMB 3.2 billion (~USD 516 million) which consists of two parts:

  1. Tongda Venture will issue new shares to Golden Benefit in an aggregate amount of RMB 800 million (~USD 129 million) at price of RMB 10.35 (~USD 1.67) per share;
  2. Tongda Venture will pay RMB 2.4 billion (~USD 387 million) in cash to Golden Benefit. Under the Covered Period, defined as “from 2014 to 2016,” the cash dividend paid out of the consideration by STV may not be over USD 3.3 per ADS unless Tongda Venture agrees.

In addition, this transaction will need approval from regulators, including the China Securities Regulatory Commission, the PRC Ministry of Finance and the PRC Ministry of Commerce. Finally, the transaction will terminate if it has not been completed by December 31, 2015.

China Digital TV Announced Supplementary Compensation Agreement on the Table

On October 27, 2014, there was a supplementary compensation agreement announced by STV that:

“…in the event that the net profit (before or after adjustment for non-recurring gains and losses, whichever is less) of Super TV in each of the fiscal years 2014, 2015 and 2016 (collectively, the “Covered Period”) is less than the profit target (being RMB190.10 million, RMB283.67 million and RMB340.66 million for the fiscal years of 2014, 2015 and 2016, respectively) or there is any impairment loss at the end of the Covered Period, Golden Benefit will be obligated to compensate Tongda Venture for the deficiency or the impairment loss by transferring its shares in Tongda Venture back to Tongda Venture and/or cash, based on a pre-determined formula with such compensations in aggregate being subject to a cap equal to the amount of the Consideration.”

Basically, we believe this means that Beijing Super TV Co needs to reach these profit targets for 2014 to 2016, otherwise STV will compensate Tongda Venture for the difference.

On November 27, 2014, the company announced that both STV and Tongda Venture’s shareholders had approved the transaction.

The company today announced that it has received approval from the PRC Ministry of Commerce, and now the transaction remains subject to approval from the China Securities Regulatory Commission (the “CSRC”).

To summarize, if this transaction goes through, STV would receive cash consideration close to USD $387 million, which will translate into USD $6.20 per ADS (the company is trading around $3.0). The company would also hold 17.2% of the post-transaction total shares of Tongda Venture (which is subject to a 3 year lock-up period).


  1. Beijing Super TV is unable to reach the profit targets set in the agreement
  2. Due to the recent correction of the China A share market, the IPO and capital-raising of A share companies could be delayed. Thus, there is a possibility that the transaction would be not completed by December 31, 2015, which would cancel the transaction.
  3. If the transaction goes through, the majority of STV’s revenue would be transferred to Tongda Venture and STV would become similar to a development stage company.

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