Shares in Dish Network parent EchoStar climbed 7% in early trading Monday in the wake of reports that the satellite TV division is once again discussing a merger with DirecTV.
The companies have long coveted a combination, though a formal proposal was scuttled by the FCC in 2002. A lot has happened in the intervening two decades and the companies are experiencing major stress due to cord-cutting.
If the two were to pull off a merger, it would create the largest pay-TV provider in the U.S., with a combined 19 million subscribers.
EchoStar stock has been weighed down of late by various financial challenges faced by the company, which has been trying to stand up a wireless competitor to AT&T and Verizon. AT&T owns 70% of DirecTV, with private equity firm TPG controlling the rest.
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Bloomberg and Reuters last Friday reported the two entities were in early discussions, though indications are that the talks are at a preliminary stage. DirecTV on Saturday reached a carriage renewal with Disney after a 13-day outage, with the impasse highlighting its challenges as a pure-play video provider. Unlike broadband purveyors with TV services, DirecTV and Dish can only offer video.
A report from Citi Research noted that after multiple attempts at a combination over the years, “there is still a high degree of industrial logic” to a merger. A deal would make sense as the companies “try to navigate the secular erosion of linear video subscriptions and improve scale to offer a streaming alternative.”
Craig Moffett of MoffettNathanson sees a much higher likelihood of a deal passing regulatory muster today, compared with a previous media era. Even if it were to prevail, though, the analyst has reservations. Synergies, for example, are limited, he argued in a note to clients Monday. “We are skeptical about pick-and-choose synergies in programming agreements,” for example, Moffett wrote. “A merger here has been anticipated for decades; protections for affiliates are therefore likely already anticipated in carriage agreements.”
