Dish (DISH) and DirecTV are once again discussing a merger, according to a New York Post report citing anonymous sources. DISH stock jumped 2.80% to $36.37 on Wednesday. DirecTV is controlled by AT&T (T) and private equity firm TPG Capital.
Dish and DirecTV are leading satellite TV providers. They have attempted several times to merge without success. About two decades ago, they attempted to merge but regulators stopped them over antitrust concerns. Also as recently as two years ago, the Justice Department’s antitrust division discouraged AT&T from pursuing a union between DirecTV and Dish until 5G networks are more broadly available in rural America.
TPG Pushing for Merger
But Dish and DirecTV have been losing customers in recent years, a situation that could help them secure regulatory approval to combine because concerns over market dominance have diminished, according to the report. DirecTV had more than 25 million subscribers in 2017, now it only has about 15 million customers. During that period, Dish’s subscriber base dropped from 13 million to 8.4 million.
“Both are decaying, dying channels — you can’t argue there is an antitrust issue,” according to a source familiar with the merger talks.
TPG Capital owns 30% of DirecTV and is pushing for the merger with Dish, according to the report.
Issues that have emerged during the merger talks include Dish Chairman Charlie Ergen demanding significant voting power, despite only having a minority stake in the combined company.
But considering the market situation, Ergen looks to be in a tight spot and may have no choice but to try to get a deal done. For example, in addition to Dish losing subscribers, the company has deadlines for its 5G network rollout. It is required to have a 5G network that can serve 20 percent of the U.S. market by the summer of 2022. The network should expand to cover 70 percent of the U.S. market by the summer of 2023. Dish could lose its 5G spectrum if it fails to meet the deployment requirements.
In November, Morgan Stanley analyst Benjamin Swinburne maintained a Hold rating on Dish stock but lowered the price target to $40 from $50. Swinburne’s reduced price target still suggests 9.98% upside potential. The analyst is concerned about Dish’s wireless business, saying it may not gain significant market share until 2024, which would also delay cash flow to the business.
Consensus among analysts is a Moderate Buy based on 5 Buys, 1 Hold, and 1 Sell. The average Dish Network price target of $53.57 implies 47.29% upside potential to current levels.
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