Deals

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals, Berkshire Hathaway Inc., media and telecommunications. She previously wrote an M&A column for Bloomberg News.

Hmm, what could Charlie Ergen be up to this time? Look to 2011 for clues. 

Dish Network Corp. announced Tuesday that Ergen is giving up his CEO post to "devote more attention to the company's emerging wireless business." He's handing the title to Erik Carlson, a long-time employee who most recently served as chief operating officer. Ergen remains chairman.

Deja vu has become a running theme at Dish, between the endless decline of satellite-video subscribers and the repetitious promise of a bright, futuristic vision for Dish's role in the wireless market -- a market in which it's not even a true player yet. This also isn't the first time Ergen has stepped back from his day-to-day CEO responsibilities to pursue grander plans. He did so six years ago and the result was a deal offensive, albeit an unsuccessful one.

Awaiting a Deal
The ebb and flow of merger rumors involving Dish Network and its wireless spectrum have put a floor under its share price, while the underlying satellite-TV business continues to shrink
Source: Bloomberg

Following the CEO change in 2011, Ergen began taking major steps toward potential mergers that would have given Dish more scale or advanced his wireless strategy, such as a tie-up with DirecTV or Sprint (then called Sprint Nextel Corp.). Emboldening Ergen and other dealmakers was AT&T Inc.'s bid that year to acquire T-Mobile -- if this deal cleared, they reasoned, then other tricky transactions stood a better shot of also getting approved. But the government ultimately stood in the way of AT&T's T-Mobile purchase.

Fast-forward to today, and AT&T now owns DirecTV, while Sprint Corp. ceded control to Masayoshi Son's SoftBank Group Corp. As for Ergen? He was left out. All that time, Dish's wireless strategy was "emerging" and in flux. Not much has changed since. The company is sitting on potentially $40 billion or so worth of unused airwaves, which trumps the $24 billion market value of Dish itself, a deserving discount when investors have yet to see anything concrete. And really nobody agrees on what Dish should be valued at anyway. 

Spectrum Hoarders
Find the one that doesn't belong. Hint: Charlie Ergen's Dish Network has a lot of wireless spectrum, but no wireless service
Source: Bloomberg Intelligence
Note: Data as of June. Doesn't include pending purchases such as Verizon's takeover of spectrum-holder Straight Path Communications Inc.

In an interesting turn of events, AT&T has once again become a catalyst for attempts at further industry consolidation, and Ergen wants in. AT&T is heading to court to fight for its $109 billion takeover of Time Warner Inc., a deal that's already inspiring -- if not forcing -- other media and telecommunications giants to explore their own transactions. Walt Disney Co. is reportedly nearing a monster deal for certain 21st Century Fox Inc. assets, which drew interest from a number of other suitors, including Verizon Communications Inc. and Comcast Corp. Sprint also recently, and foolishly, dropped plans to combine with T-Mobile, making itself available again for Ergen. Like I said, deja vu.

Dish's stock is down 11 percent this year and 35 percent from its high in 2014. While its beleaguered satellite business is probably of little interest to buyers that have shifted their focus to content, Dish does offer two very valuable assets -- the spectrum, of course, and Sling TV, a growing over-the-top streaming service. Sling hasn't been given its fair share of attention, either inside or outside the company, which is why I've argued Dish could sell it or use it as a bargaining chip in merger negotiations as rivals may see an opportunity to run the business better. 

Cord-Cutting Effect
Dish has been shedding satellite-TV subscribers faster than it's adding new ones to its cheaper Sling TV streaming service
Source: Bloomberg
Note: First figure for 2017 is first three quarters only and adjusts for the one-time removal of 145,000 subscribers in Puerto Rico and the U.S. Virgin Islands following Hurricane Maria.

As much as Verizon CEO Lowell McAdam has shot down the idea publicly, I still wouldn't be surprised if he actually was interested in Dish's assets. T-Mobile struck a mediocre partnership with Netflix Inc. this year, while Sprint announced a similar collaboration with Hulu last month. Should AT&T-Time Warner survive the Justice Department's lawsuit, that would leave Verizon as the only wireless player without an entertainment offering. And that's as Comcast, owner of NBCUniversal, and Charter Communications Inc. encroach on their wireless turf. 

Stream Dream
This shows Dish's narrow margin on its Sling TV service. A buyer might find room for improvement:
Source: Bloomberg Intelligence citing SNL Kagan and Sling.com

Ergen could also look to T-Mobile, which would be a perfect home for Sling after seeing how CEO John Legere was able to reinvigorate the T-Mobile brand. Or Ergen could reignite talks with Sprint, but he'd have to deal with Son this time with, and the Japanese billionaire has made it clear he doesn't want to give up control. Then again, with Ergen's wireless ambitions now starting to sound a bit like Son's 300-year vision -- at first intriguing, but now testing investors' patience -- they at least have that much in common.

Let us not forget the Wall Street Journal report over the summer that Amazon.com Inc. has emerged as a potential partner for Dish's wireless strategy, which Ergen has pitched as being geared toward the "internet of things" rather than traditional mobile-phone usages. One would think if any progress had been made on that front we'd have heard about it by now, but like all Amazon rumors, it doesn't not make sense. 

Whatever the outcome, it seems safe to say that Ergen is putting on his deal hat. He may have better luck this time.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net