Dish Network Corp. (DISH) Chairman Charlie Ergen informally approached Deutsche Telekom AG (DTE) about a possible merger with the German company’s T-Mobile USA Inc. unit, a deal that would let him bundle wireless service with his satellite-TV offerings, according to people close to the situation.
Dish made the proposal sometime before April 10, when Deutsche Telekom announced a sweetened bid for MetroPCS Communications Inc., according to the people. Deutsche Telekom might consider Dish’s proposal, though only after the transaction with MetroPCS closes and after verifying that a separate deal with Sprint Nextel Corp. isn’t feasible, said the people, who asked not to be named because the talks are private.
Philipp Schindera, a spokesman for Bonn-based Deutsche Telekom, declined to comment, as did Dish spokesman Bob Toevs and Sprint representative Scott Sloat.
Dish’s move is the latest twist in a frenzy of consolidation for the U.S. wireless industry. Smaller carriers are seeking out merger partners to bulk up and wage a stronger attack against the two dominant competitors, Verizon Wireless and AT&T Inc. Dish and Sprint both held talks with MetroPCS before that company agreed to its merger with Deutsche Telekom’s T-Mobile in October, people with knowledge of the discussions said last year.
Since then, Japan’s Softbank Corp. agreed to pay Sprint $20 billion for a 70 percent stake, giving the U.S. carrier more money to make its own deals. In December, Sprint announced plans to buy out the remaining shares of Clearwire Corp., its network partner, for $2.97 a share. A month later, Dish made its own bid for Clearwire, offering $3.30 a share. The satellite company faces an uphill fight in that effort because Sprint already owns more than half of Clearwire’s stock.
Dish shares rose 2.7 percent to $37.63 today after Bloomberg reported on Ergen’s outreach to Deutsche Telekom. The German company’s U.S. stock climbed 2.3 percent to $11.75, while MetroPCS advanced 1.9 percent to $11.52. Sprint, based in Overland Park, Kansas, was little changed, closing at $6.22.
Waiting until it completes the MetroPCS transaction to consider Ergen’s offer would mean T-Mobile would already be a publicly held company with 42.3 million customers. Deutsche Telekom is doing a reverse merger with MetroPCS to allow T-Mobile to start trading on the New York Stock Exchange without an initial public offering. The deal unifies the fourth- and fifth-largest U.S. carriers, though the resulting company will still rank well behind Verizon, AT&T and Sprint.
That agreement, which was initially reached in October, was criticized by investors who said it loaded up the new company with too much debt. Deutsche Telekom sweetened the terms earlier this week by reducing the debt load. The changes won the support of MetroPCS’s largest shareholder, Paulson & Co., and other investors. Richardson, Texas-based MetroPCS will hold a vote on the merger on April 24.
For Ergen, the billionaire founder of Englewood, Colorado-based Dish, the goal is to break into the wireless business -- part of a plan to decrease its reliance on the slowing satellite-TV market. Dish has accumulated a record $10 billion in cash, partly by selling bonds over the past year, giving it a war chest to expand into the new industry. Ergen’s $17 billion company now has the most money among U.S. television and phone providers, according to data compiled by Bloomberg.
A Dish acquisition of T-Mobile may be more palatable to regulators because it wouldn’t eliminate one of the top four U.S. carriers, unlike a deal with Sprint. AT&T walked away from a takeover of T-Mobile in 2011 after regulators expressed concern about losing one of the industry’s largest companies and the resulting impact on competition.
Ergen’s cash stockpile -- about the same size as Exxon Mobil Corp.’s hoard -- puts a deal for T-Mobile within reach, said Guggenheim Partners LLC. A smaller purchase, such as buying Leap Wireless International Inc., also is a possibility, according to Macquarie Group Ltd.
Sprint, meanwhile, held talks with Deutsche Telekom about a merger with T-Mobile USA as early as 2011, people familiar with the discussions said at the time. The two parties couldn’t reach an agreement on price, the people said.