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Enhanced Nationwide 5G Network: Reunification of Dish Network and EchoStar

American television and mobile wireless service provider Dish Network announced on August 8th to merge with American satellite communication provider EchoStar in an all-stock deal. Dish has a market value of about $4 billion and EchoStar has a market value of about $2 billion. EchoStar shareholders will receive 2.85 Dish Network’s Class A shares for each share they own, and this represents a 12.9% premium to EchoStar’s closing price on July 5th, the day before the media started reporting on the deal. Evercore is the exclusive financial advisor to EchoStar, and J.P. Morgan is the exclusive financial advisor to Dish Network.

EchoStar was formed by Charles Ergen in 1980 and the firm established the Dish Network name in 1996 to market its home satellite TV system. In 2008, Echostar spun out from Dish Network, became a global provider of satellite communication and internet services, and launched several satellites including EchoStar XXI. After the 2008 spin-off, Dish Network looked to expand beyond its satellite TV business into streaming TV and mobile telecom businesses, but the competition is fierce in the US with other companies like AT&T and Verizon Communications. Dish Network’s past investment in spectrum and wireless buildout combined with Echostar’s recent launch of Jupiter 3, according to Ergen, would reduce near-term capital expenditure requirements.

Charles Ergen owned more than 50% of both Dish Network and Echostar, so the motivation behind this merger is more about consolidating the finances of the two firms. Dish Network has a high leverage ratio and a negative cash flow, while EchoStar reported that it had about $1.9 billion in cash in its recent announcement. Charles Ergens hopes to build a nationwide wireless network that will cost about $10 billion, and the combined company would have access to the cash. Through this deal, Dish Network would be able to shift the focus away from its shrinking pay-TV services and pivot itself toward continuing to build its 5G wireless service that now covers 70 percent of the US population.

Echostar’s stock price, which gained about 38% from July 5th to the announced date Aug 8th, is now trading at $17.35 which is about 2% above the $17.07 price on July 5th. Dish’s stock was up 4% during the announcement period but fell from $6.76 to around $6 at the end of August. The deal was recommended by Special Committees of Independent Directors of Dish and EchoStar and both companies’ Board of Directors approved the deal. After the merger is completed, Dish shareholders will own approximately 69% and EchoStar shareholders will own about 31% of the combined companies. Echostar CEO Hamid Akhavan will serve as CEO of the combined company and Charles Ergens will serve as Executive Chairman.

In conclusion, by combining Dish Network’s nationwide 5G network and EchoStar’s satellite communications services, the combined company will have greater financial flexibility and technology to compete with rival companies in the industry including AT&T and Verizon.

Sources: Capital IQ, Reuters, Dish Network Press Release, Yahoo Finance

Written by: Jessica Feng

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