DVN (Holdings) has agreed to give a 25 per cent stake in itself to Citic Group in return for the right to sell six million set-top boxes and related software to cable television networks as China boosts the spread of digital television.
Citic will become DVN's largest shareholder, ahead of Motorola, which owns 19.76 per cent. Sources said Motorola was expected to raise its stake in DVN to 24.75 per cent within a week under a 2004 agreement.
If DVN is unable to sell six million set-top boxes, the agreement calls for Citic Group to pay $354.51 million, or $1.50 each, for the 236.34 million new shares that DVN will issue to it.
Citic Group has 49 per cent stakes in 21 cable networks in China.
DVN president Terry Lui Pan said that having the state-owned firm among its investors would give it leverage with the regional broadcast bureaus that control the networks.
'We are not just looking at selling six million set-top boxes,' said Mr Lui. 'We get higher margins from licensing our software for value-added services than we do from selling hardware.'
The State Administration of Radio, Film and Television plans to let all 115 million households with cable television to go digital by 2015. So far four million have changed.
DVN is the exclusive set-top box provider in several large cities and provinces. In the first half of this year, it sold some 1.4 million boxes, up from with one million in all of last year. It collects a licence fee for its software, which supports user interfaces such as electronic programme guides.
DVN's shares, which closed at $1.85 before their June 14 suspension, are scheduled to resume trading today.