DirecTV and Dish plan merger to survive streaming era, pending regulator approval

DirecTV is paying $1 for Dish, while assuming $9.8 billion in debt

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Editor's take: The satellite pay-TV market is steadily declining as customers depart in favor of streaming alternatives. It is not clear whether the two main players in the space, DirecTV and Dish, will survive in the long run, so the proposed merger between these providers makes sense. But will antitrust regulators agree?

Two related transactions could realign the satellite pay-TV market as millions of customers continue to cut the cord in favor of streaming media.

DirecTV has agreed to buy Dish from owner EchoStar for a nominal $1, plus the assumption of roughly $9.8 billion in debt. That transaction is contingent on an agreement with bondholders to write off about $1.6 billion of Dish obligations, as well as approval from federal regulators.

In a separate transaction, private equity firm TPG has agreed to purchase AT&T's remaining 70 percent stake in DirecTV and merge the satellite company with rival Dish. AT&T will receive roughly $7.6 billion in payments through 2029, marking the telecom giant's exit from the entertainment business. TPG already owns 30 percent of the company, having acquired the stake in 2021. AT&T has received $19 billion in payments to date from that transaction.

As part of its deal with EchoStar, TPG credit unit Angelo Gordon and DirecTV have also agreed to extend EchoStar $2.5 billion in financing to satisfy debt maturing in November. This will allow EchoStar to borrow against some of its spectrum licenses in the 3.45 GHz band.

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These transactions have no breakup fee, meaning the deal could easily be scrapped. AT&T's DirecTV divestiture doesn't hinge on the Dish deal.

Merging Dish with DirecTV would create the largest US pay-TV distributor by subscribers, even as their customer bases continue to dwindle.

According to analyst firm MoffettNathanson, Dish has 8.1 million subscribers and DirecTV has about 11 million, while cable giant Comcast has roughly 13.2 million video subscribers. DirecTV had 20.3 million subscribers at its peak in 2015 when AT&T bought a majority stake in the company.

The combined company's heft would provide more leverage to negotiate deals with channel owners. It would also have enough influence to convince content owners to sell their programming in smaller packages instead of the massive channel libraries that subscribers don't particularly like, DirecTV CEO Bill Morrow told The Wall Street Journal.

This is not the first time the rival satellite companies have tried to merge. In 2002, a similar attempt was shot down for antitrust concerns by the US government. The value of that deal was $26 billion.

This transaction depends again on approval by the Federal Communications Commission and Justice Department. This time, though, Dish and DirecTV are not the entertainment giants they were in the early 2000s, having seen their competitive positions erode as consumers moved to streaming alternatives.

Today, it is not clear that either company will survive. "At the end of the day, you're better off with one than none," Craig Moffett, an analyst for MoffettNathanson, told The New York Times. "And neither one is going to survive very long on their own. And to be fair, even putting them together is not going to change the trajectory of the business."

Complicating matters are EchoStar's precarious finances as well as Chairman Charlie Ergen's designs on the 5G cellphone service business. EchoStar has billions of dollars of debt starting to come due next month, and its executives have disclosed that the company might not cover its obligations without additional liquidity.

Ergen has collected several wireless spectrum licenses over the years, which could be cobbled together to create a nationwide 5G network that would compete with phone providers AT&T and T-Mobile. EchoStar already owns the Boost Mobile brand, but it has failed to gain much traction.

By approving the deal, regulators would leave the country with one stronger traditional satellite-TV broadcaster while also potentially introducing a fourth cellphone network.