Talks of potential corporate matrimony between Dish Network and EchoStar are gathering momentum, prompting industry analysts to speculate if Charlie Ergen, co-founder of both companies, plans to bolster the financial health of one entity at the cost of the other.
Late last week, Semafor claimed, citing well-informed sources, that both Dish and EchoStar have brought advisers on board to help structure a possible deal. Although the news subsequently gained widespread circulation, no official commentary has been released by the companies in question or Mr Ergen.
The situation has been likened to a corporate ‘re-marriage’. EchoStar divested Dish Network in 2008, with Dish obtaining the services segment of the enterprise, while EchoStar retained the technological components. Set-top boxes were transitioned to Dish roughly ten years later, followed by the acquisition of EchoStar’s satellite broadcasting services. Post these transactions, EchoStar was repositioned as a satellite communication solutions provider.
From a strategic standpoint, merging the two operations does not appear to offer any significant benefits. Instead, the underlying rationale for such a move appears to be firmly rooted in financial considerations.
As reported by Semafor, EchoStar is in a more robust financial position than Dish. The latter is confronted with shrinking customer numbers in its pay-TV business while simultaneously incurring exponential costs in expanding its mobile network. Dish’s plans for a self-owned, cloud-native Open RAN 5G network are reported to be costing around $10 billion. While it has achieved 70% population coverage (an FCC mandate), major network carriers such as AT&T and T-Mobile US still handle much of its traffic.
In contrast, EchoStar’s balance sheet shows over $1.7 billion in cash and equivalents as of March-end, and the firm essentially carries no debt. Despite considerable financial pressures, Dish’s journey forward continues, powered by debt that is more than ten times its annual cash flow (around $22 billion).
In a comment accompanying EchoStar Q1 earnings, CEO Hamid Akhavan said, “The business continues to pursue new avenues of growth…and taking tangible steps toward fulfilling our vision of a global 5G network in the S-band.”
The financial discrepancies between the two companies, underscored by Dish’s ongoing challenges and EchoStar’s stronger position, have fuelled the merger discussions. Still, such a move raises several issues. While it might seem like an efficient solution for Charlie Ergen, EchoStar shareholders might not be as keen. The ultimate decision lies in the hands of the business executives, while both firms continue their daily operations.
