Dish T-Mobile Bid Seen as Ergen’s Last Resort: Real M&A

Charlie Ergen may have one last shot at being a hunter before he’s forced to turn Dish Network Corp. into prey.

Dish, the satellite-TV company controlled by Chairman and co-founder Ergen, dropped a takeover attempt of Sprint Nextel Corp. last week after a boosted offer from rival bidder SoftBank Corp. Dish also is unlikely to prevail in a separate fight with Sprint over Clearwire Corp. after driving up the price, leaving T-Mobile US Inc. as Ergen’s last shot at buying a national wireless carrier, according to Stifel Financial Corp.

Ergen has said he’s willing to spend billions to enter the mobile-phone industry as a way to boost Dish’s revenue growth, which is projected to lag behind that of 89 percent of peers through 2015, according to data compiled by Bloomberg. While T-Mobile has become a bigger target after its market value climbed 36 percent to $16 billion since buying MetroPCS Communications Inc., a purchase would give Dish the fourth-biggest U.S. wireless provider. Without a deal, Pacific Crest Securities said Ergen could sell Dish’s rights to airwaves or even the entire company to AT&T Inc., and TMF Associates Inc. said a merger with satellite-TV rival DirecTV is another possibility.

“If Charlie does want to go into wireless and he’s hell-bent on doing it, it certainly looks like T-Mobile is the only option left on a national scale,” Chris King, a Baltimore-based analyst at Stifel, said in a telephone interview. “The pay-TV business in the U.S. is shrinking. That will almost certainly continue to be the case. It’s not good being essentially 100 percent exposed to that.”

Sprint Pullout

Bob Toevs, a spokesman for Englewood, Colorado-based Dish, declined to comment on the company’s strategy.

Dish said last week it was pulling out of the bidding for Sprint after the wireless provider rejected its offer in favor of a sweetened $21.6 billion deal with Japanese mobile carrier Softbank.

The fight for Clearwire also soured for Dish last week after Sprint countered Dish’s offer of $4.40 a share with a $5 proposal for about 50 percent of the company it doesn’t already own. Sprint has won approval from outside investors controlling about 22 percent of Clearwire stock.

Sprint’s sweetened proposal, which values Clearwire at about $14 billion, is up from an initial bid of $2.90 a share and 116 percent more than the stock’s average price in the 20 days before the offer was disclosed Dec. 13. That would be the highest premium paid in a deal for a telecom services provider valued at more than $1 billion, according to data compiled by Bloomberg.

Clearwire Retreat?

While Ergen hasn’t formally bowed out of the bidding for Clearwire, a deal at this point would be expensive, said Tuna Amobi, a New York-based equity analyst at Standard & Poor’s.

“It seems like for Dish, as far as Clearwire is concerned, it’s kind of the end of the road,” Amobi said in a phone interview. “At some point you want to retreat from the chase, and it really seems to be close to that point where Dish may have to explore other options.”

Today, Clearwire shares rose 0.4 percent to $5.05, while Dish climbed 2.2 percent to $40.03.

Ergen is unlikely to abandon his quest for a wireless phone network and will likely seek a deal for Deutsche Telekom AG’s T-Mobile, according to Erik Gordon, a business and law professor at the University of Michigan in Ann Arbor. The billionaire has amassed spectrum, or airwaves, in a bet that mobile-phone capacity will help jumpstart sales amid rising programming costs and limited expansion opportunities in pay-TV.

Slower Growth

Dish’s revenue is poised to grow about 10 percent to $15.7 billion through 2015 from $14.3 billion last year, according to analysts’ estimates compiled by Bloomberg. That increase compares with an average growth rate of 35 percent for global cable and satellite companies with market values of more than $1 billion, data compiled by Bloomberg show.

Even as the bidding for Sprint and Clearwire escalated, Ergen pushed ahead with other deals that positioned him to enter the wireless market, according to Craig Moffett, a New York-based analyst at Moffett Research LLC. Dish said last month that it will work with rural mobile-phone provider NTelos Holdings Corp. to develop high-speed Internet technology that would be the wireless equivalent of landline broadband connections.

The deal suggests “he’s nowhere close to throwing in the towel yet on wireless just because he didn’t get Sprint,” Moffett said in a phone interview. “You certainly get the sense that he’s going to leave no stone unturned in pursuing a wireless network.”

Spectrum Bid

Another sign of Dish’s commitment to wireless is Ergen’s $2 billion offer for spectrum owned by bankrupt LightSquared Inc., which failed to build a mobile network after regulators feared its airwaves would interfere with global-positioning system signals. LightSquared hasn’t acted on the bid, a group of the company’s lenders said last week.

A takeover of T-Mobile would satisfy Ergen’s desire for a wireless carrier, according to Andy Hargreaves, a Portland, Oregon-based analyst at Pacific Crest.

“We have to take him at his word and if he wants into the mobile business, that’s the only one left,” Hargreaves said of T-Mobile in a phone interview.

Dish informally approached Deutsche Telekom about a possible merger with T-Mobile before the carrier sweetened its bid for MetroPCS, people familiar with the matter said in April.

Deutsche Telekom Chief Financial Officer Timotheus Hoettges said last month that the company has the option to sell its T-Mobile stake to a third party before an 18-month share lock-up period expires.

Philipp Kornstaedt, a spokesman for Bonn-based Deutsche Telekom, and Anne Marshall, a spokeswoman for T-Mobile, declined to comment on a potential tie-up between T-Mobile and Dish.

Deutsche Telekom shares rose 2.2 percent to 8.62 euros in Frankfurt today, while T-Mobile rose 3.5 percent to $23.02 in New York.

Airwaves Sale

If Dish doesn’t strike a deal with T-Mobile, Ergen could sell the company’s spectrum, with AT&T as the most logical buyer, said King of Stifel. Ergen said in February he would “hang a ‘for sale’ sign on the spectrum” if efforts to partner with a wireless company failed.

“If he sells the spectrum for a huge profit, I’m not necessarily sure shareholders view that as a bad thing,” King said. “That’s probably the best case for Dish shareholders, certainly in the near term, if they’re able to get a nice premium for that spectrum.”

Ergen could also sell the entire $18 billion company to AT&T, said Hargreaves of Pacific Crest. The Dish chairman said in May that a sale was “always an option.”

Mark Siegel, a spokesman for Dallas-based AT&T, declined to comment on the company’s potential interest in Dish or its assets.

Eying DirecTV

Ergen’s failed bid for Sprint and a possible similar defeat in the fight for Clearwire may lead him to seek a merger with DirecTV, Tim Farrar, a satellite-industry analyst with TMF Associates in Menlo Park, California, said.

A combined Dish-DirecTV would have 34 million U.S. TV subscribers, giving it leverage over programmers to lower rate increases for content. While regulators blocked a proposed tie-up in 2002 because a deal would reduce competition, several U.S. markets now have other pay-TV options, including the Internet.

Darris Gringeri, a spokesman for El Segundo, California-based DirecTV, declined to comment about a potential merger.

Still, Dish and DirecTV are among the largest U.S. pay-TV providers and the elimination of a national competitor may create an obstacle with regulators, Leo Hindery, the former CEO of Tele-Communications Inc. and AT&T Broadband, said in an interview yesterday with Betty Liu on Bloomberg Television.

Not Done

AT&T buying Dish’s spectrum less than a year after the government approved its use or acquiring the entire company also could draw objections, said Stifel’s King.

With the bidding for Clearwire escalating, T-Mobile may look like a more attractive way to marry its spectrum with a wireless network, said Gordon of the University of Michigan.

“Is Charlie Ergen done? No, I don’t think so,” Gordon said. “He’s stated plainly that a spectrum deal is key to Dish’s future. Once you say that, you can’t say, ‘Nevermind, we’re not going to do a spectrum deal.’ At that point, you have to put the company on the block.”