DirecTV buys Dish for $1 as AT&T exits

The move will change the shape of the US pay TV industry and should help to ensure the survival of Dish as a mobile network operator.

DirecTV and Dish have been dancing around one another since a previous failed merger attempt more than 20 years ago. Rumours have waxed and waned over the years, but an upcoming debt repayment deadline for Dish owner Echostar put the pressure on and the prospect of the pair actually managing to broker a deal recently started to look very real.

Just two short weeks after we heard that talks were back on and the companies have announced a deal.

DirecTV will buy EchoStar's video distribution business, Dish DBS, which includes Dish TV and Sling TV, for a nominal fee of $1, plus the assumption of $9.75 billion in Dish DBS net debt. That's around $1.57 billion less than Dish DBS's overall net debt, therefore debt-holders need to agree to getting less back than they are owed, essentially. But given the company's financial issues of late, that probably doesn't look like too harsh a deal.

The companies are making much of their combined video offerings, talking up their broader scale, their ability to bring more content together in one place and – crucially, as far as regulators are concerned – the potential for greater flexibility and better value for consumers.

DirecTV and Dish's $26 billion merger attempt in 2002 was derailed due to competition concerns in the pay TV space, but – as we have noted a number of times in recent years – the market is very different now, with streaming players making life difficult for the establishment. This tie-up is much more likely to clear the required regulatory hurdles. That said, nothing is a given and the companies are doing all they can to position the merger as a positive for end users as well as for their own businesses.

"DirecTV operates in a highly competitive video distribution industry," said company CEO Bill Morrow.

"With greater scale, we expect a combined DirecTV and Dish will be better able to work with programmers to realize our vision for the future of TV, which is to aggregate, curate, and distribute content tailored to customers' interests, and to be better positioned to realize operating efficiencies while creating value for customers through additional investment," Morrow said.

The deal is a more complicated beast for EchoStar, whose financial struggles – following its merger with sister company Dish at the start of the year – have given rise to much speculation over its ability to avoid bankruptcy. The company acknowledged several times in recent months that it did not have the cash to pay off around $2 billion of debt maturing in November, but said it was in talks with a number of possible funding partners.

Alongside the DirecTV deal, EchoStar also announced a number of financial transactions, including the receipt of approximately $2.5 billion in new financing from TPG Angelo Gordon and certain co-investors at DBS to address that November debt maturity and provide interim liquidity.

Essentially, EchoStar has sorted its immediate financial struggles and is now focusing its attention on being a mobile operator.

"Today's strategic actions will advance our ability to aggressively compete in the US wireless market. Customers of legacy incumbents will be waking up and paying attention to our state-of-the-art network," said EchoStar CEO Hamid Akhavan. "With an improved financial profile and a unique approach, we expect to gain share, drive shareholder value, and provide more options for US wireless consumers."

One of those legacy incumbents is pretty closely involved in the tangle of deals announced on Monday.

AT&T has brokered a deal to sell its 70% stake in DirecTV to its existing financial partner TPG for $7.6 billion in cash.

The telco took a punt on DirecTV in 2015, famously paying $49 billion – or $67 billion including debt – for an asset that did not fit with its strategy for long. It finalised the sale of a 30% stake to TPG in mid-2021 and has now offloaded the lot, subject to the usual closing conditions. Clearly it spent way more than it was able to recoup, but we have known that would be the case for a few years.

Naturally, AT&T put a positive spin on the announcement. "This sale allows AT&T to continue to focus on being the leading wireless 5G and fibre connectivity company in America. This transaction also continues to strengthen AT&T's balance sheet by pulling forward cash expected over the next several years," it said.

All in all, the various parties in these newly-announced deals seem pretty happy with their lot. We have two telecoms operators keen to concentrate on that side of the industry and a new competitor – assuming all goes to plan – in the pay TV space. The deals all make sense. It's now just a question of seeing how well they all pan out in the longer term.