Goldman, Citigroup Said Wary of Ergen as He Mulls T-Mobile Bid
2014-10-23 04:01:00.17 GMT
By Alex Sherman
Oct. 23 (Bloomberg) -- Dish Network Corp. co-founder
Charlie Ergen likes to say his corporate strategy is all about
“optionality.” Wall Street banks also have options -- and, for
some, working with Ergen isn’t on the top of their list.
Goldman Sachs Group Inc., Citigroup Inc. and Wells Fargo &
Co. all view the 43rd-richest man in the world as a client of
last resort when it comes to deals, people with knowledge of the
matter say. The banks are turned off by his willingness to back
out at the last minute -- as he did with a 2007 sale to AT&T
Inc. and a 2007 purchase of Sirius XM Holdings Inc. -- and his
hard-nosed negotiating over fees and deal terms.
The issue is pertinent again as Ergen contemplates bidding
for T-Mobile US Inc. Dish, the second-largest U.S. satellite-
television company, has told Deutsche Telekom AG, T-Mobile’s
controlling shareholder, that it would be interested in
purchasing the U.S.’s fourth-largest wireless-service provider,
people familiar with the matter have said.
“He’s certainly got a reputation as a tough negotiator,
but it cuts both ways,” Craig Moffett, co-founder of
MoffettNathanson LLC, who has covered Ergen’s companies as an
analyst for more than 15 years. “It tends to breed loyalty from
his shareholders, but he’s burned a lot of bridges with
negotiations in the past.”
The people who spoke for this story asked not to be
identified discussing private information.
Ergen declined to comment through Dish spokesman Bob Toevs.
In August, the 61-year-old, who has a net worth of almost $17
billion, said “maybe” when asked during a conference call if
he will bid for Bellevue, Washington-based T-Mobile.
No Thanks
The decision not to work with Ergen is partly a result of
conflicts of interest: Goldman, Morgan Stanley, Citigroup, Bank
of America Corp. and JPMorgan Chase & Co. have all worked with
competitors to Dish, such as Comcast Corp., DirecTV, AT&T,
Verizon Communications Inc. and SoftBank Corp.
Still, five of the top six deal advisers this year --
Goldman, Morgan Stanley, Citigroup, Bank of America and JPMorgan
-- haven’t worked with Dish on an acquisition since at least
1998, according to data compiled by Bloomberg.
During that period, Ergen has undertaken several
transactions or entered bids on deals, employing Lazard Ltd.,
UBS AG, Barclays Plc and Deutsche Bank AG for the largest of
them. Among big banks, Deutsche Bank is closest to Ergen,
operating almost as the company’s house bank, one person
familiar with the matter said.
Even the German bank may find itself conflicted when it
comes to T-Mobile, thanks to its relationship with Masayoshi Son
-- the billionaire founder of SoftBank. Son has competed with
Ergen on deals in the past and is also interested in acquiring
T-Mobile.
Representatives for Goldman, Morgan Stanley, Citigroup,
Bank of America, JPMorgan, Wells Fargo and Deutsche Bank
declined to comment.
Ergen’s Loyalty
Wall Street’s royalty can often choose sides and it’s not a
coincidence Ergen hasn’t been their top choice. He is a
difficult negotiator on fees paid to banks, pushing to pay as
little as possible, four people said.
He’s also loyal, which is why he has had a long
relationship with Deutsche Bank, two people said. Some of the
fear of working with Ergen comes more from mythology than
reality, because many bankers haven’t worked directly with him,
one of the people said.
While Dish hasn’t disclosed recent M&A fees, the Englewood,
Colorado-based company paid bond underwriting fees of 0.2
percent to 0.5 percent on recent offerings of more than $1
billion, significantly less than the average of about 1.5
percent, according to research firm Freeman & Co.
He also has a reputation for being mercurial on deals,
sometimes asking for last-minute changes after initially
agreeing to a transaction, two of the people said. These
requests -- sometimes even after an agreement is in place --
have scuttled several large deals.
Banker Chagrin
About seven years ago, when Dish was still called EchoStar
Communications Corp., Ergen had a handshake agreement to sell
the company to AT&T, according to people familiar with the
matter. Before the deal was signed, Ergen asked for a non-
standard provision to be added in the transaction, causing the
takeover to break down to the chagrin of the bankers working on
it, the people said.
In early 2009, Ergen was close to a deal to acquire a stake
in Sirius until he pushed for 51 percent of Sirius’s equity, one
of the people said. Sirius was willing to sell him 49 percent,
which would have given Ergen effective control of the company.
Malone’s Move
Weeks later, John Malone’s Liberty Media Corp. bought only
40 percent of the company. Since the deal was announced in
February 2009, Sirius shares have jumped to $3.33 from about 10
cents, a gain of more than 3,200 percent.
Brad Burns, a spokesman for AT&T, declined to comment while
Patrick Reilly, a spokesman for Sirius, couldn’t immediately be
reached for comment.
Ergen’s tactics have sometimes landed him in court. When he
rescinded his bid to acquire Philip Falcone’s LightSquared Inc.
out of bankruptcy earlier this year, Falcone accused Ergen in
court papers filed in July of “wrongfully and deceptively”
creating “chaos in the bankruptcy proceedings.” Ergen claimed
he pulled his bid due to a “technical issue.” The suit is
pending in a federal court in Colorado.
’Vexatious’ Behavior
Dish’s battle with TiVo Inc. over patent infringement took
seven years to settle, finally ending in 2011. EchoStar and its
attorneys were sanctioned three separate times by federal judges
from 2004 to 2006, including “unreasonable and vexatious”
behavior in a contract dispute with a programmer, according to
the Denver Post.
As Ergen considers going after T-Mobile, even his
longstanding relationship with Deutsche Bank isn’t assured. For
the German bank, financing for a Dish bid could burn a bridge
with another potential source of advisory fees, Softbank’s Son.
Ergen might irk Son by pursuing T-Mobile because Japan’s
SoftBank owns 80 percent of wireless carrier Sprint Corp., which
Son tried to merge with T-Mobile. Frankfurt-based Deutsche Bank
had agreed to help fund that bid.
Son has shown he will punish a bank for actions he deems
hurtful to his company. After Barclays advised Ergen on his
competing bid for Sprint in 2013, driving up the price tag, Son
pressed Alibaba Group Holding Ltd. to stop working with the
British bank, according to people familiar with the matter.
SoftBank is Alibaba’s largest shareholder, with nearly one-third
of the company.
Son’s Sprint also shut out Barclays from funding its
scrapped bid for T-Mobile. SoftBank is currently considering
buying assets around the world, including Grupo Iusacell SA in
Mexico and U.S. film studio Dreamworks Animation SKG Inc.,
people with knowledge of the matter have said.
Like other banks, Deutsche Bank has a complex business
selection process that it would use to decide whether or not to
advise Ergen, if it is asked to, a person said.
Gambling Man
Dish’s shares have gained about 225 percent over the past
five years -- nearly triple the performance of the Standard &
Poor’s 500 Index in the same time period. More than $10 billion
of the company’s $27.5 billion market value is tied up in unused
wireless spectrum, Moffett estimates.
Ergen acquired the spectrum for $3 billion in 2012 through
his acquisitions of TerreStar Network Inc. and DBSB North
America Inc. The value skyrocketed after Ergen successfully
petitioned the U.S. government to allow the spectrum to be
transformed into airwaves used for mobile voice and data.
The gambit on spectrum may limit Dish’s appeal as a
takeover target, pushing banks further away from him and casting
doubt on the company’s true value, Moffett said. AT&T chose to
acquire DirecTV instead of Dish earlier this year, in part
because of Chief Executive Officer Randall Stephenson’s concerns
that regulators wouldn’t allow the second-largest U.S. wireless
provider to use the Dish spectrum because of concern about
competition, according to people familiar with the matter.
‘Drunken Fools’
Dish’s most logical buyer, Verizon, would face the same
regulatory challenges to use that spectrum, Moffett said. Ergen
doesn’t agree that Dish’s options are limited.
“When I used to play poker, and everybody was throwing
chips around and betting crazy on the table, and I had really
good cards, I always felt it was better just to sit back and
watch them go at it,” he said during a conference call in May.
“When a bunch of drunken fools were throwing money around,
occasionally I was able to pick up a pot at the end of the
day.”
The government auction of wireless spectrum later this year
puts Ergen in territory he’s used to: keeping people guessing.
If he bids for the spectrum, competitors can’t be sure if he
really wants it to expand his wireless system, or if he just
wants to push up the value of the spectrum Dish already owns.
“The government will be very happy if people show up and
bid more money,” said Tim Farrar, founder of Telecom, Media &
Finance Associates Inc., a Menlo Park, California-based research
firm. “But if Dish is bidding just to drive up the price, AT&T
and Verizon should call his bluff and stick him with billions of
dollars of additional spectrum, and see how his investors like
that.”
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--With assistance from Scott Moritz in New York.
To contact the reporter on this story:
Alex Sherman in New York at +1-212-617-8278 or
asherman6@bloomberg.net
To contact the editors responsible for this story:
Mohammed Hadi at +1-212-617-2914 or
mhadi1@bloomberg.net
Larry Reibstein, Elizabeth Wollman