Dish Network-DirecTV merger could happen


Dish NetworkDish tripled its cash balance during the past year and its Chairman Charlie Ergen has accumulated a record amount of cash, leaving investors to speculate whether he is setting his sights on a takeover of T-Mobile or a merger with rival DirecTV.

Dish tripled its cash balance during the past year by selling debt, including a $2.3 billion offering last week, amid a planned wireless expansion that already prompted a bid for Clearwire Corp. Ergen’s $16.4 billion company now has the most money among U.S. television and phone providers, according to data compiled by Bloomberg.

The bond offering last week is Dish’s fourth debt sale in the past 12 months. Added to its $7.4 billion of cash as of 12/31, Dish’s current balance is about $9.7 billion, and the figure may rise to $10.1 billion on 6/30, according to an analysis by Macquarie’s Kevin Smithen and Amy Yong.

Ergen’s cash stockpile — about the same as Exxon Mobil’s — puts a deal for Deutsche Telekom’s T-Mobile within reach, said Guggenheim Partners LLC, which would finally let Ergen bundle a nationwide wireless-phone network with his pay-TV system.

He may also seek to merge with DirecTV and build a wireless network using spectrum he already owns, according to Standard & Poor’s. Smaller deals, such as snatching MetroPCS Communications away from Deutsche Telekom or buying Leap Wireless International are other possibilities, according to Macquarie Group Ltd.

“The question remains: What are they going to do with this ample liquidity?” Tuna Amobi, an equity analyst at S&P, told Bloomberg in a telephone interview. “I wouldn’t rule out anything, really, knowing Charlie.”

Ergen is already trying to break up one of several current mergers in the telecommunications industry, offering $7.9 billion in January for Clearwire, which Sprint Nextel agreed to buy in December with financial backing from Tokyo-based Softbank Corp.

Elsewhere in the industry, Deutsche Telekom is trying to combine T-Mobile with MetroPCS as the company seeks to distance itself from the U.S. market, where its wireless business is in fourth place.

Ergen is “clearly getting ready for something,” Spencer Godfrey, a credit analyst at KDP Investment Advisors, told Bloomberg. “Having that cash opens a lot of options.”

Antitrust regulators blocked AT&T Inc. from buying T-Mobile for $39 billion in 2011. For Ergen, who has said he is willing to spend “billions” on a new wireless network to add mobile data and voice services to his company, a deal for T-Mobile would get him there.

Although Ergen has said he wants to partner with a wireless company to gain a network, a tie-up with DirecTV could make building his own system more feasible, Amobi said.

With a Dish-DirecTV merger “you could even begin to kind of imagine a network build-out,” he said. Given the amount of cash and spectrum Dish has and the potential for cost cutting if the two companies are melded, “it would begin to make probably a little bit more sense.”

See the Bloomberg story here

RBR-TVBR observation: Certainly a deal to buy DirecTV would raise antitrust concerns, but XM-Sirius Satellite merger was approved and that would likely be pointed to as a precedent for this potential merger.