Dish deal collapse would torch massive windfalls
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Jennifer Saba
NEW YORK, Nov 22 (Reuters Breakingviews) -A satellite deal is now lost in space. DirecTV ended plans to buy its pay-TV rival after controlling shareholder Charlie Ergen refused to haggle with bondholders. He’ll be stuck with an unwanted pile of debt, creditors are left on shaky ground and sizeable synergies are set to vanish.
DirecTV said on Thursday it would terminate a transaction unveiled in September to buy EchoStar’s SATS.O Dish for a nominal $1 and assume nearly $10 billion of its debt. In theory, the combination is tempting all around. First, Ergen gets to offload borrowings equal to a staggering 12 times 2024 EBITDA, allowing him to build out a long-promised wireless network instead by putting the fortune he has spent on airwaves to good use.
Dish’s mooted new owner also stands plenty to gain. Combined, their two services would have some 18 million subscribers, affording them more negotiating power with TV and film providers such as Walt Disney. Moreover, DirecTV – 70% of which AT&T T.N is in the process of selling to buyout firm TPG TPG.O – estimates at least $1 billion in cost savings from the merger. Taxed at 22% and capitalized on a multiple of 10, they would be worth $8 billion today, an invaluable sum for a business facing steady decline. Investors in Dish debt also would be more likely to be repaid.
Instead, the agreement is hurtling toward destruction. Two-thirds of Dish’s bondholders had to be willing to swallow a $1.5 billion discount in a swap accompanying the deal. Ergen may yet be able to salvage something at the eleventh hour; EchoStar has until midnight on Friday to assuage bondholders with better terms, perhaps by including some cash. In the meantime, lenders powered ahead with their lawsuit against Dish and EchoStar that accuses the two companies of moving assets beyond their reach when they merged in 2023.
As it stands, EchoStar is projected to burn four times more cash in 2026 than this year, according to estimates gathered by LSEG. Bondholders seem willing to take their chances, leaving DirecTV to fend for itself under TPG, at least for now. Given the sums at stake, it’s shaping up to be an epic lose-lose-lose.
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CONTEXT NEWS
Satellite operator DirecTV said on Nov. 21 it is terminating its deal with EchoStar-owned Dish because Dish bondholders rejected the terms of a debt exchange that required them to accept a $1.5 billion discount.
Under terms of the transaction announced on Sept. 30, DirecTV agreed to buy its pay-TV rival for a nominal $1 and assume $9.75 billion of debt. DirectTV said it expected to generate at least $1 billion of annual cost savings from the combination by the third anniversary of the deal closing, originally expected to be in late 2025.
PJT Partners is DirecTV’s lead adviser and Barclays is advising private equity firm TPG, which is buying 70% of DirecTV from AT&T. JPMorgan is advising EchoStar. Bank of America, Evercore, LionTree and Morgan Stanley also provided advice to DirecTV and TPG.
Dish Network's revenue slide https://reut.rs/3ZjxmPg
Editing by Jeffrey Goldfarb and Pranav Kiran
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