Dish Network’s stock dropped to a two-month low Monday before recovering to close down 6% after the company announced it would acquire broadcast satellite assets from EchoStar in an all-stock deal valued at $800 million.
The transaction, framed as a follow-though of a 2017 deal for EchoStar assets seen as critical to Dish’s legacy satellite and Sling TV internet-delivered TV services, centers on Echostar’s Broadcast Satellite Service business. Nine direct broadcast satellites (DBS), real estate and key staffers will be delivered to Dish in exchange for 22.9 million shares of Dish stock.
Dish CEO Erik Carlson said in a press release the deal will create operational efficiencies and improve free cash flow and EBITDA. Closing is expected in the second half of 2019.
Investors have been perplexed by several recent moves by Dish, mainly its hoarding of broadcast spectrum. Over the course of this decade, federal regulators have orchestrated a complicated auction and “repacking” of spectrum assets aimed at reflecting the boom in wireless technology and changes in the communications landscape. Many traditional spectrum owners — especially broadcast TV station owners — have profited handsomely from the sale of spectrum, much of which was gobbled up by telecom giants as well as Dish.
Chairman and founder Charlie Ergen has spoken in recent months about a plan to enter the 5G wireless derby, but Dish’s “narrowband” network will not target mobile devices as the telecom industry’s will. Instead, Dish’s offering will be aimed at smart homes and the widening array of internet-enabled devices. In a recent interview with Bloomberg, Ergen likened the effort to the Manhattan Project in the 1940s, which yielded the atomic bomb.
Spectrum not deployed for the 5G rollout could net Dish tens of billions of dollars, at least on paper. Several Wall Street analysts have cautioned that the window of opportunity to sell the spectrum could be closing, however.
Pivotal Research on Monday announced it was downgrading Dish’s stock to a “hold” rating. The imminent approval of the T-Mobile-Sprint merger, a tie-up predicated on 5G technology, “likely significantly pushes back the timing for a potential Dish spectrum deal materially,” Pivotal’s Jeffrey Wlodarczak wrote in a note to clients. The analyst said the T-Mobile-Sprint deal would lower the value of Dish’s spectrum by 10%.
Wlodarczak also considers Dish’s acquisition of EchoStar satellite assets a non-starter, though he concedes it may have been “prudent” given the long wait to monetize spectrum holdings. “We don’t love the deal as it amounts to the holding company … issuing equity to give the DBS business more financial flexibility,” he wrote.