Deal activity sends signal: Sat TV merger is not dead
DirecTV, EchoStar team for b'bandWall Street chatter about a merger of DirecTV Group and EchoStar Communications resurfaced Thursday as the satellite TV giants struck a wireless broadband service deal with an up-and-coming provider and a report suggested that EchoStar and future DirecTV parent Liberty Media could make a joint acquisition.
First, the companies expanded their options for offering broadband Internet services at home and on the go, unveiling Thursday a product-bundling deal with Clearwire Corp., a provider of wireless high-speed Web services and telephony via the nascent WiMax technology.
The news comes at a time when cable operators have been successful at retaining and growing subscribers with product bundles. Wall Street observers also increasingly have wondered whether bundling arrangements between the satellite firms and such telecommunications giants as AT&T Inc., Verizon Communications and Qwest can be sustained longer-term given that the two sides increasingly are competing in the video space.
Second, the Wall Street Journal reported that EchoStar and Liberty Media — which is expected to take a controlling stake in DirecTV this year — were readying a surprise joint bid for satellite communications provider Intelsat Ltd. The company is expected to fetch slightly more than $5.5 billion.
Clearwire shares jumped 23.3% on Thursday to $24.50 as investors cheered its new distribution deal.
Under the arrangement with DirecTV and EchoStar, Clearwire can offer the video services of one or both satellite TV companies to its customers. Similarly, the satellite firms can sell Clearwire's services to their users in bundles or as a stand-alone product. The launch of the new product offerings is planned for this year.
Last year, DirecTV and EchoStar expanded their high-speed Web offers via a distribution deal with WildBlue, a satellite broadband provider partly owned by John Malone's Liberty Media.
"Being able to offer services on the Clearwire network will give our customers another high-quality option to subscribe to broadband services," said Bruce Churchill, president of new enterprises for DirecTV.
Clearwire president and COO Perry Satterlee said that the deal with EchoStar and DirecTV is "an opportunity to significantly expand our business opportunity."
Nolan Daines, senior vp strategic initiatives at EchoStar, added: "Our ability to offer Clearwire's broadband service is a strong competitive alternative that we believe will help increase our subscriber base."
Kirkland, Wash.-based Clearwire offers its service in 39 U.S. markets, covering about 9.9 million people. Once it closes all pending spectrum purchases, Clearwire's spectrum will cover about 223 million people in the U.S.
EchoStar and DirecTV have long said that they are exploring options in the WiMax space, though some industry observers still have doubts as to whether WiMax is reliable and fast enough to compete with wireline broadband offers.
Meanwhile, the possible Liberty and EchoStar deal for Intelsat also garnered attention.
An EchoStar spokeswoman declined comment, and Liberty officials couldn't be reached.
While some Wall Street observers said the joint bid could allow Liberty and EchoStar to diversify revenue beyond traditional video services via satellite, which have been subject to increasing competition, others were scratching their heads over the rationale.
"The strategic benefits for EchoStar are unclear to us," Bear Stearns analyst Spencer Wang wrote in a report. Among other things, "a deal would reduce Dish's financial flexibility and may limit returns of capital to shareholders," he said.
Overall, Wang said the news "will likely lead to new speculation about an eventual merger of EchoStar and DirecTV." However, he also warned that a recent visit to the FCC makes him believe "that for the foreseeable future such a deal is unlikely to receive regulatory approval."
DirecTV shares rose 2.7% to $23.48. EchoStar shares closed unchanged at $44.93.