Combined, this acquisition would have created more than 150 million subscribers, which would have been far greater than #1 Verizon’s 115 million and #3 Sprint’s 55.6 million subscribers. As a result, the FCC blocked the proposal, saying “the transaction would decrease competition, innovation and investment, and harm consumers.”
A Repeat of History?
The FCC must approve any proposed merger between DISH Network Corp (NASDAQ:DISH) and DIRECTV (NASDAQ:DTV). Already, DirecTV and Dish are the largest two satellite companies, by far. But, if we look at cable, satellite, digital, etc. all combined, then DIRECTV (NASDAQ:DTV) and DISH Network Corp (NASDAQ:DISH) are numbers two and three.
| Company | U.S. Subscribers |
|---|---|
| Comcast | 22.3 million |
| DirecTV | 20 million |
| Dish Networks | 14 million |
| Time Warner | 12 million |
If a merger was ever presented, it would equal almost 35 million subscribers, which would be more than 50% greater than Comcast. The AT&T Inc. (NYSE:T)/T-Mobile deal would’ve only been 30% greater than Verizon’s subscribers. Therefore, a DirecTV/DISH Network Corp (NASDAQ:DISH) merger might be even more “unfair” than the AT&T Inc. (NYSE:T)/T-Mobile deal.
Then, there is one more element to consider: DIRECTV (NASDAQ:DTV) also has 16.3 million subscribers in Latin America. While this is hardly a concern to the FCC, it might pose a regulatory issue in Latin America, further adding to an unlikely merger.
The bottom line: If the FCC considered the AT&T Inc. (NYSE:T)/T-Mobile acquisition as negative for the economy or as an unfair advantage, then why in the world would they approve a merger than would be even more impactful relative to its industry?
My belief is that this massive merger will never be approved, but it could create some excitement within the market among those who believe it is possible. Sure, DirecTV and Dish might talk, and might even present a deal, but it doesn’t matter if the FCC will not sign off.
How Does This Affect You?
On Thursday, Dish Networks traded higher by 3%, with the most to gain from a merger, seeing as how it is the smaller of the two companies. Most likely, as these rumors, or talks, continue, more gains will be created. However, once it falls through, it could create sudden losses for investors.
My advice is to accept the obvious. Shares of Dish Network have returned a 6% gain in the two days following the suggestion of a merger. The stock is trading higher by more than 50% over the last year and is now trading at 39 times earnings.
On the other hand, DirecTV is trading at just 13 times earnings, and is actually growing faster. Thus, if I were looking to invest in the space, I’d definitely go with DirecTV, and would not follow the rumors of a potential merger.
Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends DirecTV. Brian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Should You Buy These Massive Merger Rumors? originally appeared on Fool.com is written by Brian Nichols.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
