DISH Rises Amid Renewed M&A Speculation After Asset Swap

Shares of DISH Network (DISH) are on the rise after the company and EchoStar (SATS) announced that they have executed an agreement that will transfer certain EchoStar assets and operations to the former in exchange for DISH’s economic interest in Hughes Retail Group. The move has sparked commentary from Wall Street analysts, who pointed out that the deal simplifies the corporate structure of the companies, facilitating potential M&A.

ASSET SWAP: Last night, DISH and EchoStar announced they have executed an agreement that will transfer certain EchoStar assets and operations, including its EchoStar Technologies hardware and software development group, its national and regional uplink business, its managed fiber backhaul network serving all U.S. DMAs and its OTT development group to DISH in exchange for the latter’s 80% economic interest in Hughes Retail Group held in the form of a tracking stock. The transaction also transfers to DISH the 10% stake in Sling TV held by EchoStar, wireless spectrum licenses covering four markets in the 28 GHz band and certain real estate properties.

MOVE FACILITATES M&A: In a research note to investors, Macquarie analyst Amy Yong said she believes DISH’s move simplifies the corporate structure and, more importantly, facilitates M&A as it eliminates negative points for a potential deal. Consolidating Sling TV and other assets simplifies the company’s corporate structure, clarifies the valuation, and makes an eventual sale easier, she contended. Moreover, the analyst noted that timing may be viewed “suspiciously,” post the Verizon (VZ)-Charter (CHTR) takeover rumors only a week ago. DISH is one of many M&A options for Verizon, Yong argued. She reiterated an Outperform rating and $67 price target on DISH’s shares. Her peer at Macquarie, Andrew DeGasperi, said in a research note of his own that simplifying the ownership structure of EchoStar and divesting set-tops unlocks over 10% in incremental shareholder value and bring its multiple closer to other satellite peers. Further, narrowing the multiple gap may open new M&A scenarios for EchoStar, he added. DeGasperi reiterated an Outperform rating on EchoStar stock and raised his price target on the shares to $68 from $60. Meanwhile, commenting on the asset swap and what it could mean, Wells Fargo analyst Marci Ryvicker pointed out that the move “is interesting.” The analyst noted that her “gut” tells her that the companies are being cleaned up for a reason, which “could be related to something transformative.”