The proposed DirecTV-Dish merger could be terminated as a deadline of midnight Friday looms to do so after Dish bondholders rejected a debt swap offering that’s required to consummate the multi-part transaction with Dish-owner EchoStar. However, at least one analyst believes that until the deadline passes, there’s a chance a transaction could still see the light of day.
DirecTV as of Thursday continued to state a stance that it will terminate the deal by 11:59 pm ET on Friday. The Wall Street Journal reported Thursday night that DirecTV had informed Dish owner EchoStar that it plans to walk away from the proposed merger – which would create the largest pay TV provider in the U.S. – by the cut off tonight.
The final status of the deal isn’t yet immediately clear as another report from Reuters published what appeared to be a more definitive statement on scrapping the merger, attributed to DirecTV CEO Bill Morrow.
"'.. we have terminated the transaction because the proposed exchange terms were necessary to protect DirecTV's balance sheet and our operational flexibility,' Bill Morrow, CEO of DirecTV, said," Reuters, reported, but added the caveat that DirecTV said “deal termination would be effective Friday.”
DirecTV didn’t immediately respond to inquiry from StreamTV Insider.
That said, while public stance and a fast-approaching deadline indicates a deal may be all but dead, Octus senior research analyst Adam Rhodes continues to believe a transaction is in the best interest of all parties and that they may be pushing each other until the last minute to reach an agreement.
“Although the public indications from both the dissident DBS noteholders and DirecTV show that a deal has not yet been reached, until a formal termination of the agreement tonight at midnight, we believe these developments are just noise,” Rhodes told StreamTV Insider.
The Thursday comments from DirecTV echo a statement provided to StreamTV Insider by DirecTV last week, when it said it would do so after a group representing about 85% of Dish bondholders, which hold about $10.7 billion of debt and its DBS subsidiary, rejected a debt swap. The exchange offer included a reduction or so-called “haircut” of about $1.49 billion on the value of the bondholders’ debt (under an amended October 28 exchange offer that was lowered from the original discount of $1.56 billion) in exchange for more secure debt in the merged pay TV company. Getting the exchange offer completed is necessary to consummate the pay TV tie-up. It’s part of a broader transaction, whereby DirecTV agreed to buy EchoStar’s Dish assets for the nominal amount of $1 plus the assumption of debt. Also related to the deal, private equity firm TPG bought out AT&T’s remaining 70% stake in DirecTV for full ownership. TPG, along with DirecTV and other lenders, also provided EchoStar about $2.5 billion in financing to pay certain debt maturities, interest and other needs to keep the company – which itself was on the brink of bankruptcy ahead of the merger announcement – operating.
Rhodes also noted “the operative words” in both DirecTV’s statement and EchoStar filings are “effective at 11:59 pm ET tonight.”
“We have expected that there would be an element of brinkmanship to this negotiation, so it is no surprise that we are in the current situation,” the analyst continued.
Rhodes said that on the eve of the deadline for DirecTV to scrap the deal due to the failed exchange offering, DBS bondholders filed an amended complaint that “looks like an escalation intended to drive a more favorable transaction.”
And if a deal doesn’t get done, lawsuits could ensue. As the WSJ noted, the bondholder group sued multiple Charlie Ergen-controlled EchoStar subsidiaries earlier this year, and filed an amended complaint Thursday after EchoStar raised $5.6 billion in new financing in November.
“If the parties indeed walk away from this transaction, the stakes for the DBS noteholder litigation become even greater,” commented Rhodes.
He also believes that since the acquisition was announced September, other developments in the pay TV space have further underscored strategic rationale for the deal, including more expectations for consolidation opportunities under the incoming Trump administration and Comcast’s announcement this week of a spinoff of certain cable networks into a standalone publicly traded entity.
“Logically, we would expect distributors to follow suit in order to defend their cost structures,” the analyst said. “This dynamic raises the price of a failed DirecTV-DISH pay TV combination.”
And amid a changing pay TV ecosystem that’s dealing with broader declines alongside a continued consumer migration to streaming, Rhodes sees benefits from a DirecTV-Dish tie-up.
“The pay TV landscape is changing quickly and the greater scale of a combined Dish pay TV-DirecTV would be critical in negotiating additional streaming content from programming providers, enhancing the company’s transition to a hard bundle competitor providing both legacy linear and SVOD content,” Rhodes said.
As for Dish-parent EchoStar, the company also has a wireless retail business and is building out a 5G network and has said it will be able to continue operating the businesses regardless of whether a merger with DirecTV goes through.