Dish Network Corp. (DISH) and DirecTV may have a better chance to merge today than when regulators struck down a deal almost a decade ago, according to newly appointed Dish Chief Executive Officer Joseph Clayton.
“I don’t discount any possibility,” Clayton said May 20 in an interview on Bloomberg Television. “It’s probably easier from a regulatory environment today than it was 5 to 10 years ago, when it was originally proposed. We’re looking at anything that will help enhance shareholder value.”
The U.S. Federal Communications Commission rejected a combination between Englewood, Colorado-based Dish and DirecTV in 2002, saying the merger would harm consumers. Since then, the expansion of Internet video and TV distribution from telecom companies AT&T Inc. (T) and Verizon Communications Corp. have increased the availability of pay-TV beyond satellite and cable.
AT&T’s proposed $39 billion acquisition of T-Mobile USA Inc., if approved, may indicate the regulatory environment has transformed enough for a deal to be approved, said Craig Moffett, an analyst at Sanford C. Bernstein & Co. in New York.
“It would be very difficult from a public relations standpoint, if the AT&T deal is approved, for the FCC to explain that Dish and DirecTV can’t also merge,” said Moffett. “The economic benefits of putting these two companies together are still enormous.”
Prospects of a Transaction
AT&T on March 20 proposed buying Deutsche Telekom AG’s T- Mobile in a deal that would combine the second- and fourth- largest carriers to create a new market leader, ahead of Verizon Wireless. Regulatory approval may take a year, AT&T said when it announced the proposal.
“The T-Mobile deal is the same concept, you’re removing one competitor,” said Vijay Jayant, an analyst for Citadel Securities LLC in New York. “If that gets done with reasonable concessions, the folks at DirecTV and Dish should be watching. The prospects of a transaction could increase.”
Darris Gringeri, a DirecTV spokesman, declined to comment. DirecTV, based in El Segundo, California, is the largest U.S. satellite-TV provider.
Dish, the second largest U.S. satellite-TV provider, fell 6 cents to $29.42 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have risen 50 percent this year. DirecTV (DTV) rose 12 cents to $50.18 and has gained 26 percent this year.
Moffett said client inquiries on the possibility of a merger have been rising in recent months. Even with the increased competition in video, regulatory approval wouldn’t be assured, he said. Satellite is still the only way for many rural Americans who aren’t connected to cable to watch television, just like ten years ago.
AT&T’s U-Verse and Verizon’s FiOS are available in about 40 percent of the country, according to Jayant, and the “evolution of wireless technology and Web content” have broadened the video market since December 2002. That’s when EchoStar Communications Corp., then the owner of Dish, dropped its $27 billion proposal to buy Hughes Electronics Corp., the parent of DirecTV at the time and a unit at General Motors Corp.
The same rural Americans who don’t have cable also don’t have access to broadband, Moffett said, increasing the possibility that regulators could accept a T-Mobile deal while denying a Dish-DirecTV merger.
Clayton, who replaced Ergen as Dish’s CEO May 16, said he was unaware that any merger discussions were ongoing “at this particular point in time,” although he acknowledged that Dish talks to DirecTV and watches the company “all the time.”
An approved deal between Dish and DirecTV would result in “billions of dollars of synergies,” said Jayant. The companies could stop paying duplicate retransmission fees, the largest subscriber-related expense for Dish.
An announced deal would likely send shares of both companies higher, said Jayant, because of the mutual cost savings. The structure of such a deal would depend on tax benefits, he said, and could result in either company controlling the other one. DirecTV’s market cap, at $38.5 billion, is nearly three times the size of Dish’s.
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