Aug 8, 2023

Dish to Buy EchoStar as Ergen’s TV Empire Shifts to Wireless

Scott Moritz, Bloomberg News

A Dish Network satellite dish on the roof of a home in Crockett, California, US, on Monday, July 31, 2023. Dish Network Corp. is scheduled to release earnings figures on August 3. , Bloomberg

(Bloomberg) -- Dish Network Corp. is proposing to buy EchoStar Corp., the satellite network operator it once owned, in an all-stock deal valued at about $4 billion as billionaire Charlie Ergen works to turn his struggling legacy pay-TV business into a wireless communications company.

Every share of EchoStar will be converted into 2.85 shares of Dish, representing a premium of 12.9% for EchoStar stockholders, according to a company statement issued Tuesday. Existing Dish investors will own about 69% of the merged company. Dish shares surged as much as 9% while EchoStar fell 2%.

The merger reunites EchoStar with its former parent, which spun off the business in 2008. While EchoStar’s shares have risen by almost 15% in the past 12 months, Dish shares have plunged nearly 60% amid investor concerns about its debt levels and its reliance on a shrinking base of satellite TV subscribers.

“This is purely a financial move, which will give Dish a little more help in the credit market,” said Roger Entner, an analyst with Recon Analytics.

Dish had been effectively cut off from the debt market and has a narrow window to address its capital structure. Credit analysts had estimated that Dish would need as much as $16 billion in new capital between 2024 and 2026 to cover spending, wireless costs and address upcoming debt maturities as it works to transform itself into a wireless data service provider and challenge the likes of Verizon Communications Inc., T-Mobile US Inc. and AT&T Inc.

The company announced in June that it met its mobile network buildout requirement and now covers more than 70% of the US population. The same month, Dish launched Boost Infinite, its nationwide mobile subscription service, with a competitive $25 a month unlimited data plan. Ergen has told investors that Boost Infinite will prove its value in the market and help address the company’s financial situation.

What Bloomberg Intelligence Says:

Its plan to merge with EchoStar would provide Dish with access to cash to advance its 5G buildout after Chairman Charlie Ergen’s plan to tap the debt markets for financing got derailed by rising interest rates. Ergen, who controls both companies, could gain access to EchoStar’s $1.9 billion in cash and nearly $265 million in free cash flow expected this year, based on consensus, assuming the deal is approved.

— John Butler and Hunter Sacco, BI telecom analysts. For full note, click here.

Ergen, who is chairman of the board of both Dish and EchoStar, said merging the two companies “strengthens our balance sheet.” In an interview with CNBC on Tuesday, he also said the deal “lengthens our runway for the next couple years, but there’ll be more to do on that.”

EchoStar Chief Executive Officer Hamid Akhavan will lead the combined company, and Ergen will serve as executive chairman, according to the statement. Erik Carlson, the CEO of Dish and a 15-year veteran of the company, will step down when the transaction closes by the end of the year — another sign that Ergen wants to take Dish in a different direction.

“Everyone serves at the pleasure of Charlie Ergen,” Entner said.

EchoStar has $702 million in cash and $1.5 billion in debt as of June. The company provides satellite services including secure communications technologies through its Hughes Network Systems and EchoStar Satellite Services businesses, its website shows. Hughes’s Jupiter 3, the world’s largest commercial communications satellite, was launched into orbit last month by SpaceX’s most powerful operational rocket and will provide wireless internet connectivity over North and South America.

Dish shares rose 8% to $8.27 at 10:58 a.m. in New York Tuesday. The bonds surged on news of the deal: Dish’s 7.750% notes due 2026 rose 4.25 cents to 70 cents on the dollar as of 8:15 a.m., according to Trace data.

EchoStar’s board special committee was advised by Evercore Inc. while JPMorgan Chase & Co. advised Dish’s board special committee.

--With assistance from Fareed Sahloul, Michael Tobin and Liana Baker.

(Updated with deal value and stock and bond reaction)