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DirecTV Agrees to Merge With Satellite Rival Dish

The pair of deals lets private-equity firm TPG buy AT&T’s remaining stake in DirecTV and absorb rival Dish.

AT&T’s exit from the satellite-TV business clears the path for DirecTV to pursue a cleaner union with longtime rival Dish. Photo: Justin Sullivan/Getty Images

AT&T’s exit from the satellite-TV business clears the path for DirecTV to pursue a cleaner union with longtime rival Dish. Photo: Justin Sullivan/Getty Images

Private-equity firm TPG agreed to buy AT&T’s T -0.11%decrease; red down pointing triangle remaining stake in DirecTV and merge the satellite company with rival Dish in a one-two punch designed to keep the pay-TV provider competitive in the streaming era.

AT&T agreed to sell its remaining 70% share of DirecTV to TPG for roughly $7.6 billion in payments through 2029, sealing the telecom giant’s exit from the entertainment business. TPG bought a 30% stake in 2021.

In a separate deal announced Monday, DirecTV agreed to buy Dish from owner EchoStar SATS -11.45%decrease; red down pointing triangle for a nominal $1, plus the assumption of roughly $9.8 billion in debt. That merger depends on an agreement with bondholders to write off about $1.6 billion of the Dish obligations as well as approval from multiple federal regulators.

 

The Details

AT&T expects its divestiture to close in the second half of 2025. The tally includes $1.7 billion in distributions AT&T will receive this year, plus $5.4 billion of after-tax payments in 2025 and $500 million in 2029.

The transaction would complete an exit that started in 2021 when AT&T sold a 30% stake in DirecTV’s U.S. operations to create a joint venture with TPG. The venture has been paying out cash distributions to its owners. AT&T said it has received $19 billion in payments since 2021.

In its deal with EchoStar, TPG will assume Dish’s debt if bondholders agree to the exchange. TPG credit unit Angelo Gordon and DirecTV also agreed to extend EchoStar $2.5 billion in financing to satisfy debt maturing in November.

The arrangement would also free EchoStar to borrow against some of its spectrum licenses in the 3.45 GHz band, giving the company more flexibility in the coming years.

Neither transaction comes with a breakup fee, meaning either side could scrap the deal should business concerns or a denial by regulators stand in the way. AT&T’s DirecTV divestiture isn’t contingent on the Dish deal.

 

The Rationale

AT&T’s exit from DirecTV fits the company’s strategy to pay down debt and refocus on its cellphone and broadband businesses. Chief Executive John Stankey once championed the entertainment offerings but opted to leave the sector soon after he took over in 2020, arguing that phone and internet offerings appealed more to the company’s core investor base.

 

Pay-TV subscribers, 2014 and 2023

Pay-TV subscribers, 2014 and 2023

2014

2023

20 million

11 million

DirecTV

14 million

9 million

Dish

Note: The 2023 figure for Dish includes Sling TV.

Sources: New Street Research (DirecTV 2023);

companies’ filings

 

EchoStar Chairman Charlie Ergen also wants out of the satellite business that made him rich. The Dish co-founder is focusing his attention on 5G cellphone service backed by a trove of wireless spectrum licenses he has amassed through years of auctions and other deals.

Merging Dish with DirecTV would bolster both brands’ profits as their customer bases erode. The deal would create the largest U.S. pay-TV distributor by subscribers, despite their falling trajectory, which would give executives more leverage to negotiate deals with channel owners.

DirecTV CEO Bill Morrow said the line between satellite broadcasters like his and the media companies that feed them content has all but disappeared. Channel owners like Warner Bros. Discovery and Paramount Global are reaching viewers through their own streaming-video services even as they charge cable and satellite networks to carry some of the same programming.

“They’re not that different from us anymore,” Morrow said in an interview. “You already have so much competition that’s out there because the programmers control the content.”

Morrow said the merged satellite rivals would have enough heft to force content owners to agree to sell their programming in slimmer packages instead of the massive channel libraries that often drive away subscribers.

 

The Context

DirecTV and Dish have explored a potential combination for decades only to see antitrust concerns thwart their efforts. The government in 2002 sued and blocked their proposed merger, which was valued around $26 billion when it was announced.

The precarious position of Ergen’s telecom empire looms over the process. EchoStar has billions of dollars of debt coming due in November 2024 and beyond. Executives have said the company might not cover its obligations through mid-November without some new source of liquidity.

Ergen has said he is betting his company on those wireless licenses, which could be used to create a nationwide 5G network to compete with phone providers like AT&T and T-Mobile. EchoStar, which will continue to own the Boost Mobile brand, has so far failed to gain traction against its deeper-pocketed wireless competitors.

The Federal Communications Commission and Justice Department would need to approve a deal that would leave the country with one traditional satellite-TV broadcaster while keeping the hope for a viable fourth cellphone network alive.

Patience Haggin and Miriam Gottfried contributed to this article.

Author: Drew FitzGerald

Source: WSJ:

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