Dish Network’s Stock Slide May Hasten DirecTV Merger Prospects

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Dish Network chairman Charlie Ergen has said a potential merger with DirecTV is “inevitable” during multiple post-earning analyst calls. The prospect of a merger between two fading pay TV players may become more likely, market watchers say, if the satellite TV company’s share price keeps collapsing amid inflation and recession fears.

Jeffrey Wlodarczak, an analyst with Pivotal Research Group, sees upside potential in Dish’s planned $10 billion 5G wireless network buildout, and from what he agrees is an inevitable merger with DirecTV. “I think a weakening economy certainly might put some pressure on the parties to reach a deal as it could accelerate the decline of traditional pay TV,” Wlodarczak told The Hollywood Reporter.

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On Wednesday, Dish’s share price continued its recent slide, falling $4.29, or nearly 20 percent, to end the trading day at $17.46.

There’s still sizable synergies available from a merger, Wlodarczak added, noting that regulators that previously stopped a Dish/DirecTV combination over antitrust concerns may conclude a transaction could ensure pay TV continues to reach rural America.

The problem is more TV viewing options for rural Americans means Dish’s customer churn rate is rising, further undermining the future of the satellite TV player and reducing the appeal of a merger with DirecTV.

Craig Moffett, an analyst with MoffettNathanson, sees a Dish/DirecTV merger certainly cutting the cost of signing up new customers. That subscriber recruitment effort is just getting that much tougher. “Unfortunately, with gross additions this low, there isn’t much synergy opportunity left here,” Moffett said of a possible satellite TV merger in a May 6 investor note.

The impetus for renewed merger talks follows traditional satellite TV players are losing even more customers opting for streaming platforms just as Ergen’s Dish is pivoting to rolling out a wireless phone network. On May 6, Dish reported a loss of 462,000 net pay TV subscribers during the first quarter, compared to a year ago, to stand at 10.2 million customers.

The losses at Sling TV were even more stark, as total subscribers fell to 2.2 million for the quarter, down from 2.5 million a year earlier. Dish CEO W. Erik Carlson told analysts during the first quarter results conference call that increased subscriber losses followed the end of the football season, “but the bottom line is we simply didn’t execute to the level we expected.”

The Dish CEO’s challenge — as investors see continuing market carnage and a sudden focus on customer growth rates after Netflix reported subscriber losses — will be to find Wall Street rewards for a 5G wireless buildout that requires time and a substantial investment to play out.

“Now it’s execution time (where admittedly execution had been dicey), while wins are admittedly still over the horizon. We still favor Dish as our LT ‘concept stock,” Gregory Williams, an analyst at Cowen, said in a May 11 investors note.

Deutsche Bank analyst Bryan Kraft also has patience for Dish’s wireless network buildout plans, even as its traditional satellite TV business struggles. “We are reiterating our buy rating, but lowering our PT to $61 (vs $67 prior),due to our now lower pay TV and retail wireless forecasts, combined with a higher assumed cost of debt to reflect the current interest rate environment and the widening of Dish’s credit spreads,” Kraft said in a May 8 investor note.

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