DirecTV, Dish merger rumour builds

Many Wall Street analysts, as well as savvy investors, seem to believe that a merger between DirecTV and arch-rival Dish Network is very much back on the cards. Last week saw DirecTV’s share price rise a useful 4.5 per cent (and a 52-week ‘high’), and Dish rise almost 3 per cent on the rumours, and both driven forward by heavy volumes.

The movements were helped by DirecTV pulling out of a planned purchase of Vivendi’s sale of Brazilian telco GVT – and thus ‘saving’ a potential commitment of some $9 billion.

One analyst, Macquarie’s Amy Yong, said bluntly: “With a potential acquisition of GVT off the table, we believe the likelihood of a DirecTV-Dish merger is much more likely,” she said. Such a merger could end up with a broadcasting giant of some 34 million subscribers.  The acquirer would be DirecTV, paying anything up to $50 per share (Dish closed last week at $35) which would represent a spectacular premium for founder Charlie Ergen and his family, and other investors.

“While a DirecTV purchase of Dish would need to clear multiple regulatory hurdles, we believe a deal would deliver near- and long-term synergies, be extremely accretive, and improve both companies’ competitive positioning,” Yong wrote in her report to clients.

And it isn’t as if the two companies have not been down this road before. Readers with a long memory will recall that back in 2002 the then EchoStar (ahead of its split into two separate businesses) and Hughes Electronics, which owned DirecTV tried to merge, and were thwarted by antitrust and monopoly concerns.

Ms Yong now believes those fears have evaporated. With the strength of US cable, plus the DSL-based services from the USA’s telco giants, plus the OTT players such as HuLu, Amazon and Netflix, consumers are no longer trapped into just two choices of video supplier.

Moreover, DirecTV’s CEO Mike White has publicly expressed his recognition that there would be “strategic merit” in such a merger, while Charlie Ergen admits that it might be time to consider such a move.

“You’ve got a basically mature video business that’s very competitive, with the power structure being more on the programming side than the distribution side, and then tremendous distribution coming — almost unlimited distribution power coming from broadband and the Internet, which neither one of us have a lot of assets in, so I think it’s something that probably both companies will look at,” Ergen said.

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