AT&T Deal for Dish Network Still Okay After EchoStar/Hughes Merger? (SATS, HUGH, DISH, T, VZ, DTV, CMCSA, TWC, CVC)February 14, 2011 by Jon C. Ogg
EchoStar Corp. (NASDAQ: SATS) has agreed to acquire Hughes Communications Inc. (NASDAQ: HUGH) for about $2 billion, including debt, in a deal that would give EchoStar, which makes set-top boxes and satellites for Dish Network Corp. (NASDAQ: DISH), additional broadband satellite capability. Hughes shareholders get $60.70/share, which is less than Friday’s closing price of over $61/share, but a 31% premium over Hughes’ price on January 19th, the date on which speculation about the deal hit the news. Apollo Management IV L.P. is the majority owner of Hughes.
This acquisition really does nothing to jeopardize, or for that matter enhance, a long-rumored deal between AT&T (NYSE: T) and Dish, made headlines again last week when Credit Suisse suggested that AT&T may be ready to make an offer for Dish. For its part, Dish has agreed to purchase satellite communications provider DBSD North America Inc., which is currently in bankruptcy, for about $1 billion. If the deal goes through, Dish would add wireless spectrum, something AT&T would be more than happy to have.
The catch, of course, is whether or not regulators would allow AT&T to acquire either Dish or competitor DirecTV (NASDAQ: DTV). And as soon as AT&T announces a deal, Verizon Communications Inc. (NYSE: VZ) would be in line to acquire the other. President Obama has outlined a plan to expand wireless broadband access to residents of the rural US and to create a nationwide mobile emergency network. The more spectrum that AT&T and Verizon have available, the better their chances of getting a piece of the action.
The terrestrial cable broadband providers, Time Warner Cable Inc. (NYSE: TWC), Comcast Corp. (NASDAQ: CMCSA), and Cablevision Systems Corp.(NYSE: CVC), are certain to object to any expansion or consolidation from the large wireless carriers. It’s unlikely that they will want to compete for wireless spectrum, but they could certainly raise objections that would slow down and perhaps persuade regulators to stifle consolidation in wireless broadband.
Dish may not be able to complete the buyout of DBSD as cheaply as the company had hoped because a bankruptcy judge has ruled that DBSD must entertain other bids that have been reported to be in the works.
The deal with Hughes doesn’t add a lot of value to Dish from AT&T’s point of view. EchoStar’s role with Dish expands, but doesn’t break into a new space. Dish’s deal with DBSD is more important, but could still fall through. Even if it does, though, it’s not enough to be a deal-breaker for AT&T.
Shares of Hughes are trading off about -3.75% this morning, under $60/share, while EchoStar shares are up about 1%.