DJ Why Dish Could End Up in the Arms of Verizon
Shares of Dish Network Corp. and T-Mobile US Inc. are rising after the Journal splashed the news that the two companies are in merger talks across the front page. Verizon Communications Inc.'s stock dropped in early trading.
Yet Citigroup analyst Michael Rollins argues that Dish may ultimately end up in the arms of Verizon.
"We increasingly see two options for DISH: buy T-Mobile US or sell to Verizon," Mr. Rollins wrote in a research note. In fact, he says a sale to Verizon is the more likely outcome.
Verizon, he argues, has the most to lose if Dish and T-Mobile join forces. "A merger could quickly catapult Dish into the wireless arena and strengthen T-Mobile's distribution, product bundling capabilities, and network capacity," he wrote.
Verizon was already facing a potential shift in the competitive landscape before news of the potential Dish deal broke. AT&T Inc.'s pending $49 billion acquisition of DirecTV, announced last month, would create a competitor with a "national wireless and national video footprint."
By buying Dish, Verizon could get "over-the-top video capabilities and and a large base of linear video customers from which it can extract programming scale and content for its emerging over-the-top platform."
Verizon, Mr. Rollins admits, may be wary of the cost of a Dish purchase. Verizon, he wrote, has already made it clear that it doesn't want to spend a large premium to acquire wireless spectrum. Dish outbid Verizon in the most recent auction. Yet by buying Dish, Verizon could instead use its stock to fund a deal, rather than debt, which it needed to use to buy spectrum.
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Meanwhile, should T-Mobile get left at the altar again (remember it was long pursued by Sprint Corp. but Sprint gave up in the face of regulatory headaches), could Sprint return? Mr. Rollins said if there was a change in stance among regulators, T-Mobile would likely be interested.
T-Mobile has also had another suitor in France's Iliad SA. Iliad offered to buy a majority of T-Mobile last August but ultimately abandoned its plans. Investors will look to see whether Iliad could reemerge as a real buyer.
On its own, T-Mobile could be a "potential strategic partner to multiple companies in multiple forms," Mr. Rollins wrote.