DIRECTV (DTV): Is DISH Network Corp (DISH) Dependent on a Dovetail Deal?

The likelihood of government opposition is also a huge roadblock to such a transaction. The FCC and Justice Department opposed a proposed merger of DISH, then known as EchoStar, with DirecTV in 2002. Their worry that such a combination would reduce competition in the television service market, in particular for rural customers, probably hasn’t diminished.

T MOBILE US INC (NYSE:TMUS), the fourth-largest U.S. wireless service provider with about 44 million wireless subscribers, might be a more likely DISH partner. T MOBILE US INC (NYSE:TMUS) is clearly focused on gaining market share and could definitely use additional bandwidth. Thanks to innovative pricing plans, mobile device financing, and increased 4G coverage, the wireless provider reported strong customer growth of 1.1 million net additions in its latest quarter. To keep up with this surge, the company recently announced an agreement to purchase spectrum from U.S. Cellular.

But this union also has its hurdles. It’s not likely that T-Mobile would want to acquire DISH in its entirety just for the spectrum. A stock-based merger of equals is also not probable since Deutsche Telekom, T-Mobile’s parent, would not wish to have their control diluted and thus be further from an agreeable exit strategy. That leaves DISH having to buy T-Mobile, a very expensive proposition.

Given that T-Mobile purchased MetroPCS for an enterprise value (EV), or stock market value plus long-term debt, of around 1.77 times revenue or roughly $1,000 per subscriber, and the recent AT&T purchase of Leap Wireless went for around 1.32 times revenue or $845 per subscriber, an EV offer of around 1.65 times revenue or nearly $950 per subscriber would probably be necessary to get T-Mobile’s attention. This deal, in the $40 billion to $42 billion range, might be too big for DISH even with its war chest of around $9 billion in liquid assets.

Conclusion
DISH might be in a tough spot. Wall Street seems to be very optimistic that the company can realize the full value of its satellite-TV business and spectrum assets, but a synergistic merger or acquisition might be the only thing that can fulfill this faith. While there are possible deals out there, it is unclear if any would be able to overcome the obstacles that would nix such a transaction.

The article Is DISH Dependent on a Dovetail Deal? originally appeared on Fool.com and is written by Bob Chandler.

Bob Chandler has no position in any stocks mentioned. The Motley Fool recommends DirecTV. 

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