Plans for a proposed merger of pay TV providers Dish and DirecTV have once again failed, as the latter made good on plans to terminate a purchase agreement by last Friday’s midnight deadline following rejection of a debt swap offering by a group of Dish bondholders earlier this month.
DirecTV last week had said it planned to terminate the agreement with Dish-parent EchoStar by 11:59 pm ET on November 22. EchoStar on Friday filed an 8-K with the SEC stating that DirecTV informed the company on November 20 of plans to do so before midnight on November 22.
Despite some views of that a level of brinkmanship may be at play, with the deadline now passed and no subsequent disclosures by either company, it appears DirecTV indeed followed through and canceled the purchase agreement as of Friday evening. *Update: Shortly after publication, a DirecTV spokesperson got back to StreamTV Insider and confirmed that the company has officially terminated the transaction.
Ahead of Friday’s deadline DirecTV put out a statement that it intended to terminate the agreement after failing to get a group of noteholders – representing around 85% of Dish’s DBS debt – on board, which was necessary to complete the transaction.
“While we believed a combination of DirecTV and Dish would have benefitted all stakeholders, we have terminated the transaction because the proposed Exchange Terms were necessary to protect DirecTV's balance sheet and our operational flexibility," said Bill Morrow, CEO of DirecTV, in a statement Thursday night. "DirecTV will advance our mission to aggregate, curate, and distribute content tailored to customers' interests by pursuing innovative products and providing customers with additional choice, flexibility, and control. We are well positioned for the future with a strong balance sheet and support from our long-term partner TPG."
Private equity firm TPG is now the full owner of DirecTV, after acquiring AT&T’s remaining 70% stake as a separate transaction related to plans for a DirecTV-Dish deal.
As part of the deal announced in September, DirecTV agreed to acquire the Dish pay TV business, including virtual MVPD Sling TV from parent EchoStar for the nominal amount of $1 plus the assumption of debt. It would’ve shaved about $11.7 billion of consolidated debt off EchoStar’s balance sheet, as the telecom provider itself was struggling and on the brink of bankruptcy when it first announced plans for the merger.
Under an amended October 28 exchange offering, the Dish bondholder group would’ve had to take a discount of approximately $1.5 billion on the value of their debt – swapping for more secured debt in the merged company. However, that offer – which needed to be completed for DirecTV’s acquisition to proceed - was rejected by the bondholder group earlier this month.
What now?
EchoStar CEO Hamid Akhavan during Q3 earnings earlier this month, said that while he was hopeful the debt swap would be completed, expressed confidence that company could continue operating regardless of whether the DirecTV-Dish transaction was completed.
“While we are hopeful the DBS exchange will be successful, we now have a more robust foundation to operate and grow EchoStar’s business independent of the exchange outcome,” Akhavan commented during Q3 earnings.
“…whether the [DirecTV-Dish] transaction closes or not, we do have a path forward now with the cash available to us from other sources that we have put on the balance sheet, we certainly can develop the business regardless of the developments that happen at DBS,” Akhavan continued.
Debt-laden EchoStar, which also operates a retail wireless business and is building out a 5G network, secured financing of over $5.2 billion in November. Among its transactions, DirecTV and private equity owner TPG, among other lenders, provided over $2.5 billion in financing.
According to Octus senior research analyst Adam Rhodes, in closing its new EchoStar financing and other transactions, the parent company had “over $6 billion in pro forma liquidity on September 30, providing it with more than ample near-term liquidity” even without DirecTV’s acquisition. For the pay TV side of the business, he noted that the next Dish DBS maturities arrive in 2026, and in the meantime, ongoing litigation against EchoStar by the group of DBS bondholders will proceed.
As for the $2.5 billion in financing provided by TPG Angelo Gordon to a subsidiary of Dish DBS, Rhodes told StreamTV Insider “that financing remains in place and actually expands with the deal falling through.”
Despite the pushback from noteholders, Rhodes had thought there was potential for a deal to go through, viewing it as in the best interest of all parties involved – and the analyst doesn’t think termination of the purchase agreement by DirecTV necessarily represents a final nail in the proverbial merger coffin.
Dish DBS litigation proceeds, potential for another agreement
Ahead of Friday’s deadline, Rhodes said failure to complete a deal would increase the likelihood for litigation from the Dish bondholder group. The Dish bondholders previously filed a lawsuit against EchoStar and filed an amended complaint last week after EchoStar raised the new financing.
Without an agreement in place, the DBS noteholders’ litigation moves forward, he noted, but the window for EchoStar to strike a settlement remains open.
“It remains to be seen whether the looming end of the calendar might bring the parties to the table,” Rhodes commented via email Monday. “Completion of the litigation [between EchoStar and DBS noteholders] would likely represent a year’s long process.”
And in terms of DirecTV-Dish combination, the players could still end up coming together in a new agreement.
“I believe there is still an opportunity for DirecTV to strike another Dish pay TV acquisition agreement,” Rhodes commented. “If DirecTV is willing to return to the table, which we think is likely under the current industry backdrop, then a deal could happen.”
A merger of DirecTV and Dish would create the largest pay TV provider by subscribers in the U.S., and the analyst continues to view a combination of the two with each other as the most logical deal for both companies amid broader legacy pay TV industry declines.
“With the continuing subscriber declines we’re seeing throughout cable and satellite TV and our anticipation of consolidation among cable programming providers, in our view, it makes commercial sense for distributors like Dish and DirecTV to consolidate as well,” Rhodes said.
But for now, as DirecTV forges ahead without a Dish acquisition, one of its moves is jumping into the free ad-supported streaming TV (FAST) game – this month officially launching the MyFree DirecTV service.
Article updated to add confirmation from DirecTV that it officially terminated the transaction.