As a seasoned gamer with over two decades of experience under my belt, I’ve witnessed the rise and fall of many giants in various industries. The recent news about DirecTV and Dish Network merging reminds me of when Atari decided to merge with Namco back in 1986 – a move that ultimately led to the downfall of the once-mighty Atari.
One day following the anticipated merger between DirecTV and Dish Network, a prominent credit agency has expressed skepticism about certain justifications for this significant agreement between the two struggling satellite titans.
On Tuesday, S&P Global issued a statement, warning that DirecTV, under CEO Bill Morrow’s leadership, has been placed on a negative credit watch. The concern lies in the ongoing decline of the traditional television industry, which is shrinking rapidly, and potential cost savings may not counterbalance these losses. The credit agency added that due to assuming approximately $10 billion of Dish DBS’ debt at an EBITDA multiple of around 3.5 times, DirecTV’s financial metrics could weaken.
On September 30th, the two satellite television competitors reached an agreement. As per this deal, AT&T, the current owner of DirecTV, will sell its remaining 70% share to TPG, a private equity firm. Subsequently, DirecTV and Dish Network (owned by Echostar) are expected to merge. This merger would be valued at $1, along with assuming debt. The companies anticipate that the deal, if successful, will be finalized in the last quarter of 2025. If combined, the new entity would have approximately 20 million TV subscribers who pay for their service.
The corporations assert that this agreement could potentially save around $1 billion in annual cost savings. However, S&P Global cautions that these savings might not be sufficient. In their report, they note that only slightly more than half of U.S. households still subscribe to traditional TV services, a significant decrease from the 88% in 2010. This decline has led to DirecTV losing 15% of its subscribers year over year in Q2 of 2024, and S&P Global expects similar trends to persist across the industry.
Regarding the synergies mentioned, there’s a possibility of customer turnover (churn) due to the challenges involved in transitioning current satellite subscribers to new service plans, as stated by the credit rating agency. In their words, “We consider these synergies as having a higher risk of execution compared to others because of the potential for service disruptions or customer losses.
As part of the split from AT&T to TPG, it’s been announced that DirecTV will have to make payments totaling $2 billion in 2025, with additional estimated payments amounting to around $7.6 billion over the years 2025-2029. In John Flynn’s words, this transaction empowers DirecTV to invest more effectively in future video services that cater to consumers and offer a wide variety of programming options.
As a passionate follower, I can’t help but express my thoughts about the upcoming merger. In a cautious analysis note penned by a team at Moffett Nathanson, they forecast that if the deal is approved, it might take up to two years for its completion. By this time, they predict that the merged business could have contracted by another 25 percent.
In summary, S&P Global stated in their credit watch bulletin that having a larger scale may give DirecTV additional bargaining power with content providers to potentially limit price hikes and offer more programming options. However, they believe this advantage alone may not be enough to offset the intense competition DirecTV is facing.
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2024-10-01 17:55