Wells Fargo Discusses Potential Dish (DISH)/DirectTV (DTV) Deal

Rumors from Bloomberg Wednesday said Dish Network (NASDAQ: DISH) CEO Charlie Ergen approached DIRECTV (NYSE: DTV) CEO Mike White about a merger. In the view of analyst Marci Ryvicker of Wells Fargo, a merger of the two is logical, but her experience in D.C. doesn't give her a "warm and fuzzy" feeling when it comes to consolidation. She fielded a number of investors questions in a research note.

Why now?

"We don’t think it strange in the least that the DISH-DTV story is emerging right now, especially in light of the consolidation noise in cable (CMCSA, TWC, Liberty, CHTR, CVC, Cox….you name it and all of these companies have been reported to be a buyer and/or seller in the recent past). In fact, we would go so far as to deem a discussion between the two DBS players as a fiduciary duty to their respective shareholders. We’re not saying a merger “has” to get done by any means, but we do think exploratory conversations make a tremendous amount of sense post CMCSA-TWC," said Ryvicker.

Were you surprised Charlie initiated the talks?

"Yes – we were surprised that Charlie initiated the discussion given his focus on wireless. However, Charlie IS all about optionality, in our view – and we believe DTV has always been one of those LT options that might be a closer consideration post CMCSA-TWC."

Is this “for real” or was the leak "planted"?

"Look, who really knows. On the one hand, we do think the conversation(s) took place given the potential cable consolidation. However we wouldn’t be surprised if the headlines were leaked so as to jump start informal due diligence on the regulatory hurdles."

Can a DISH-DTV deal get done under the current administration?

"Clearly the regulatory hurdle is the biggest, in our view. And the concern remains the rural “issues” that plagued that last potential DISH-DTV marriage in the early 2000’s. At the same time, maybe enough concessions (think price freeze) will do it – as should the promise of a low priced broadband service (think DishNET or even fixed wireless). But again, our recent experience with the FCC was quite negative when it came to the topic of consolidation, so we don’t really know how to handicap this potential transaction when it comes to the regulatory hurdle."

What are the potential synergies and where do they come from?

"We have heard both management teams talk about synergies in the $30-40B range (NPV), resulting from lower churn, combined marketing/advertising, fewer satellites, lower programming costs, fewer sales people, lower corporate overhead, etc."

Will this “news” spark other interest in DISH and/or DTV?

"Given its wireless spectrum assets, DISH likely has more “natural” buyers than does DTV. If anything, we think today’s headlines might spark those with potential interest in DISH to move more quickly than they otherwise would have."

Wells Fargo has an Outperform rating on Dish Network.

For an analyst ratings summary and ratings history on Dish Network (NASDAQ: DISH) click here. For more ratings news on Dish Network click here.

Shares of Dish Network closed at $62.09 yesterday.

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