DirecTV to buy Dish DBS, reducing EchoStar’s debt load

EchoStar frames transaction in terms of debt reduction and strengthening its focus on wireless and satellite connectivity

What can you get for a dollar these days? A satellite TV company, apparently—as long as you’re willing to take on the billions in debt that come with it.

That’s essentially the proposed deal for a merger between the two largest satellite TV operators in the U.S. DirecTV hopes to merge with EchoStar’s Dish DBS satellite video distribution subsidiary (including Dish TV and Sling TV), paying just $1 but assuming a major portion of the company’s debt.

EchoStar will retain its wireless-related assets, including its hefty spectrum holdings, and its satellite-related assets, with plans to tighten its strategic focus on both its terrestrial cellular Open RAN network and development of non-terrestrial direct-to-device solutions.

“This agreement is in the best interests of EchoStar’s customers, shareholders, bondholders, employees, and partners,” said Hamid Akhavan, president and CEO of EchoStar. “With an improved financial profile, we will be better positioned to continue enhancing and deploying our nationwide 5G Open RAN wireless network. This will provide U.S. wireless consumers with more choices and help to drive innovation at a faster pace. We expect Dish and EchoStar bondholders to benefit from two companies with stronger financial profiles and more sustainable capital structures.”

EchoStar has been making a series of deals meant to shore up its precarious financial position, starting with its merger with Dish Network that was supposed to open up more capital resources for a combined company. At the time of that merger, Charlie Ergen, who was chairman of the board of both companies and remains executive chairman of the board of the combined company, called the merger of EchoStar and Dish “a strategically and financially compelling combination that is all about growth and building a long-term sustainable business.”

But the combined EchoStar still faced the looming prospect of debt coming due in multiple waves, which it did not have the cash or financing in place to cover, and revenues falling in its most recently reported quarter as it continued to shed customers across all of its business units. CFO Paul Orban told investors in August that EchoStar also did not have the cash or projected cash flow to fund its fourth-quarter operations or the $2 billion notes coming due in November.

In a series of transactions, AT&T’s majority stake in DirecTV will first be acquired by private equity firm TPG, and TPG will provide EchoStar with $2.5 billion in financing to help pay off that $2 billion which is due this November. EchoStar outlined plans for an exchange of debt due in 2025 and 2026 for debt due in 2030 plus new investments that it says will enable it to raise $5.1 billion in capital from existing shareholders. EchoStar also noted that, assuming all of the transactions go through as planned, it will mean that its spectrum holdings in the 3.45-3.55 GHz band are unencumbered by debt, meaning that it could further borrow against them. EchoStar said that once the associated transactions are complete, it will reduce its total consolidated debt, excluding financing leases and other notes payable, by about $11.7 billion and that it will have reduced its refinancing needs through 2026 by approximately $6.7 billion.

DirecTV has tried to acquire Dish before, with a merger attempted in 2002 that was quashed by federal regulators. But the proliferation of streaming video services and the extension of broadband in the 22 years since has led to heavy subscriber losses in satellite TV services; so the two companies are seen as having a better chance this time that federal regulators will approve the merger, in order to keep a viable satellite TV competitor in a much-changed video services market.

Craig Moffett of MoffettNathanson told The New York Times that he didn’t expect the government to challenge the merger this time, because of the weak position of satellite TV relative to other options. “At the end of the day, you’re better off with one than none,” Moffett was quoted as saying. “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.”

Communications Workers of America President Claude Cummings Jr. issued a statement in response to the proposed merger, called Dish “one of the most anti-union employers in the entire telecommunications industry” and saying that CWA “will be taking a close look at the impact of DirecTV’s acquisition of Dish Network on our members at DirecTV and the industry as a whole and working with DirecTV’s management to ensure that all workers at the company continue to have a voice on the job and strong union contracts.”