By Phillip Swann
The TV Answer Man –@tvanswerman
TV Answer Man, I read that Charlie Ergen wants to merge Dish and Echostar. What’s the point of that? How is that going to help the satellite business which is falling apart? I don’t get it. Do you know what’s going on here? — Todd, Springfield, Missouri.
Todd, Semafor.com yesterday reported that Charlie Ergen, the chairman of both Dish and Echostar, is considering merging the companies which have been separate entities since 2008. The article, penned by the business site’s Liz Hoffman, notes that Dish is deep in debt while Echostar, which runs Ergen’s TV set-top business, is basically debt free. Ergen could use the consolidation to create more stability for his holdings which could help him find financing for his 5G wireless business.
It’s unclear from the article how the merger, which would have to be approved by federal regulators, would fortify the declining satellite TV business which is rapidly losing subscribers to cord cutting.
But I have a theory.
The New York Post reported last month that merger talks between DIRECTV and Dish have stalled. The article did not offer a specific reason for the impasse, but Dish’s financial woes would be a likely cause.
Ergen has long said the merger is “inevitable” because both satellite operators are in decline and only consolidation can ensure a long-term future for one. But DIRECTV might be reluctant to join with Dish now because its rival is saddled with $22 billion in debt.
That possibility was reinforced on June 20 when AT&T CFO Pascal Desroches told an industry conference that his company would be hesitant to agree to a merger with Dish unless the deal generated more ‘value’ than it does now. (AT&T now owns 70 percent of DIRECTV after selling a 30 percent stake to the private equity firm, TPG.)
“We separated from our satellite platform, and we have it in a construct where it’s been optimized by our partners at TPG. They do a really good job in optimizing that asset” he said. “So right now, we are in a really good position with the asset. Would we look at other opportunities? We always do, that’s our job. But the bar would be pretty high in order to do something to try to accelerate more value creation.”
Would a Dish-Echostar merger make a DIRECTV-Dish merger more valuable to AT&T than it is now? Absolutely – if it allowed Dish to strength its bottom line and attract funding for the 5G wireless project.
The merger would likely have Ergen running the DIRECTV/Dish biz with AT&T/TPG holding a minority stake. That stake would be more valuable to AT&T if Dish was a stronger company today and in the future.
Yes, this is my theory. But we’ll probably see in the coming months if it holds water. It’s becoming abundantly clear that Ergen is desperate to make a bold move to turn his grand vision for the satellite industry and 5G business into a reality.
Todd, hope that helps. Happy viewing and stay safe!
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— Phillip Swann