Ergen’s DirecTV Overture Puts Dish in Play: Real M&A
Charlie Ergen doesn’t want to be left out.
The chairman of Dish Network Corp. (DISH) contacted DirecTV Chief Executive Officer Mike White to discuss a merger of the two satellite-television companies, people with knowledge of the matter said yesterday. Ergen made the approach in response to Comcast Corp.’s planned $45 billion acquisition of Time Warner Cable Inc., according to one of the people.
Dish was left behind amid a wave of deals that also included Sprint Corp., Leap Wireless International Inc. and Clearwire Corp. The $28 billion company may be a good match for AT&T (T) Inc., which would gain more spectrum and video offerings if it acquired Dish, Roe Equity Research said. There are benefits to Dish merging with either DirecTV or AT&T, according to Macquarie Group Ltd.
“Dish is definitely in play,” Amy Yong, a New York-based analyst at Macquarie, said in a phone interview. “You can make the case for a Dish-AT&T merger or a Dish-DirecTV merger.”
Ergen declined to comment on whether he’s talking with DirecTV. Bob Toevs, a spokesman for Englewood, Colorado-based Dish also declined to comment on a potential merger with AT&T.
Darris Gringeri, a spokesman for El Segundo, California-based DirecTV, declined to comment, as did Dallas-based AT&T’s Brad Burns.
Dish shares surged to a 14-year intraday high yesterday following the Bloomberg News report about Ergen’s approach. They closed at $62.09, a 6.3 percent gain. DirecTV jumped 5.7 percent to $77.34.
DirecTV’s White is reluctant to push forward with formal talks out of concern regulators may block the deal because the two companies directly compete with each other, a person with knowledge of the matter said. Although White is hesitant to pursue a deal, he hasn’t ruled it out entirely, another person said. The talks are being conducted at a senior level with no official process yet under way, according to several people.
DirecTV (DTV) is the largest U.S. satellite-TV operator, with about 20 million paying subscribers and a market value of $39 billion. Dish is No. 2 with about 14 million subscribers, and also has a portfolio of wireless spectrum, or airwaves, that may be valued at almost $26 billion, according to Bloomberg Industries.
“The synergies would be significant for a DirecTV-Dish merger,” said Yong of Macquarie.
With all large mergers comes the possibility of scrutiny by regulators, who review transactions to make sure companies don’t gain too much pricing power. Regulators blocked DirecTV and Dish’s 2002 attempt to merge.
If Comcast wins approval to buy Time Warner Cable, a tie-up of Dish and DirecTV becomes more plausible, according to Tuna Amobi, a New York-based analyst at S&P Capital IQ.
“The regulators have been showing more inclination to green-light bigger deals,” Amobi said in a phone interview. “The argument for combining is more compelling today with all sorts of competition out there. So I think the parties can make a more convincing case that, with the cable guys getting bigger, why shouldn’t the satellite guys?”
Even if regulators allow the Comcast-Time Warner Cable deal to go through, DirecTV management doesn’t see it as a proxy for approval of a merger with Dish, said one person. Unlike the cable merger, whose territories don’t overlap, combining two satellite companies would eliminate an option for many TV subscribers.
Ergen’s wireless ambitions make AT&T a more fitting suitor for Dish, Amobi said.
Ergen is attempting to transform Dish into more than just a satellite-TV provider and has said he’s willing to spend “billions” to do so. He made failed bids for Clearwire and Sprint last year, and people close to the situation said that he also informally approached Deutsche Telekom AG about a possible merger with the German company’s T-Mobile USA Inc. unit.
AT&T, the largest U.S. wireless carrier behind Verizon Communications Inc.’s Verizon Wireless, could pursue Dish to boost its video and wireless broadband capability. That would allow it to better compete with a combined Comcast-Time Warner Cable, said Jonathan Chaplin, an analyst with New Street Research LLP in New York.
The dearth of remaining wireless targets also could lead AT&T to turn its attention to Dish, said Kevin Roe, an analyst with Roe Equity Research in Dorset, Vermont.
About $317 billion worth of takeovers for U.S. satellite and cable TV providers or telecommunications companies have been announced in the past 18 months, according to data compiled by Bloomberg. That’s more than the entire deal volume for 2007 through 2011, the data show.
“In wireless, there is no deal left that would move the needle at AT&T,” Roe said in a phone interview. “Dish would materially improve AT&T’s spectrum position and give them a unique video asset to complement their strategy of offering wireless, video and broadband data in more rural markets.”
AT&T CEO Randall Stephenson also recently put a damper on speculation that the $180 billion company will soon bid for Newbury, England-based Vodafone Group Plc, saying the window to invest in Europe is almost over. Focusing on the U.S. and buying Dish is a better idea anyway, New Street’s Chaplin said.
“The one thing in the U.S. that AT&T absolutely needs to do is acquire Dish,” Chaplin said. “With Dish’s spectrum, they would have an unassailable advantage over Verizon forever, and the threat of Sprint coming on with it’s new capacity, would be radically neutralized.”