NEW YORK — DirecTV is walking away from plans to buy Dish Network over a failed debt-exchange offer, although some analysts expect the satellite TV providers will return to the deal table given the potential for billions of dollars in synergies.
Satellite operator EchoStar, which owns Dish, said in a Nov. 22 regulatory filing that DirecTV had notified the company that it would be terminating the deal at 11:59 pm Eastern.
Dish bondholders needed to agree to swap their existing debt for new debt issued by the merged entity at a reduced value for the transaction to go through, resulting in a “haircut” of about $1.57 billion.
The deal would have seen DirecTV buy Dish parent company Dish DBS, which also owns online streaming service Sling TV, for $1 while taking on roughly $9.75 billion of debt.
“While we believed a combination of DIRECTV and DISH would have benefitted all stakeholders, we have terminated the transaction because the proposed Exchange Terms were necessary to protect DIRECTV’s balance sheet and our operational flexibility,” DirecTV CEO Bill Morrow said in a statement.
New Street Research analysts estimated the plan would generate nearly $9 billion in synergy value.
This potential value remains too high to ignore, New Street Research analyst Jonathan Chaplin said. A combined company would also have more time and resources to find ways to transition a business that continues to lose satellite TV subscribers to online streaming services.
The companies have periodically revisited a potential merger over the years.
According to Chaplin, the next iteration of a merger may have to wait until bondholder litigation against EchoStar over earlier transactions they say moved billions of dollars in assets out of their reach is resolved.
“The key reason this deal failed is because both sides in the litigation are convinced that they will win,” he said. “Unfortunately, the litigation could take a while.”
If the litigation is not resolved in the next few years, Chaplin expects the next major driver would be sizable DBS debt maturities due in July and December 2026.
“Bondholders are convinced that DBS is insolvent and that the maturities will force the Company in bankruptcy,” he wrote.
“If they are right, and if they take control of the asset, they will undoubtedly pursue a deal with [DirecTV]. If they are wrong, EchoStar will pursue the deal.Â
“The synergies will erode over time, but we suspect they will be big enough that the deal will still be worth pursuing at any point in the future.”
EchoStar had outlined plans to aggressively expand its satellite and terrestrial mobile broadband services after offloading its video distribution business, aiming to strengthen its position to capitalize on opportunities such as the emerging direct-to-device market.
“We respect [DirecTV’s] decision and will continue to deliver the excellent customer experience our pay-tv brands are known for,” EchoStar spokesperson Ted Wietecha told SpaceNews via email.
“As mentioned on our recent earnings call, we have a more robust foundation to operate and grow EchoStar’s business, independent of this agreement.”
Wietecha pointed to how EchoStar recently received funds to pay a November debt maturity, and also raised an additional $5.6 billion through equity and debt backed by its spectrum licenses.
