Business transformations are highly risky and can go horribly wrong. One home-grown example is Boto, which was one of the world's largest artificial Christmas tree makers. In 2002 it sold this profitable business to Carlyle, a private equity outfit, to invest in an animation firm, in which it had limited experience.
The company was renamed Imagi and fell into a multiyear run of losses. A consortium led by Francis Leung, ex-chairman of Citigroup Asia, rescued the firm in 2011 when it almost ran out of cash.
A similarly drastic business transformation occurred in March, when City Telecom sold its cash-cow telecoms business to CVC, another private equity player, for about HK$5 billion to focus on multimedia.
The telecoms business connects about two million homes and 1,700 commercial buildings in Hong Kong with high speed fibre-optic links providing telephone and internet services. The enterprise accounted for almost all of City Telecom's revenue and profits.
In contrast, City Telecom's multimedia business, which the company launched in 2003 as part of its internet division, generated less than HK$450,000 of revenue for the six months ended February 2012.
But City Telecom has big hopes for this unit. It applied for a free-to-air television licence in Hong Kong in December 2009, of which issuance is pending. City Telecom said in the shareholder circular issued in connection with the sale of the telecoms business that it plans to start with 12 channels, mixing its own programmes with acquired content - it plans to produce 650 hours of drama, and 520 hours of news and entertainment in 2013.
