DISH Network Corp. (DISH), the second largest satellite-TV operator in the U.S., yesterday received an approval from a U.S. bankruptcy court to acquire a 100% stake of DBSD North America Inc.
At present, DBSD is under bankruptcy and is reorganizing its businesses. DBSD is a hybrid satellite and terrestrial communication service provider.
In the previous month, DISH Network initiated a bid to fully acquire DBSD for around $1 billion. However, within a few days, two large private equity firms, Harbinger Capital Partners and Solus Alternative Asset Management, came up with higher bids. This forced DISH Network to reconsider its original offer. Finally, DISH Network decided to pay a little over $1.4 billion to get DBSD under its nest.
In addition to the $1 billion stated earlier, DISH Network will now provide $325 million more to DBSD’s parent ICO Global Communications (Holdings) Ltd. and remain committed to DBSD for another $87.5 million as debtor-in-possession credit facility. Industry sources predicted that the highest alternative bid for DBSD was just $1.14 billion.
This acquisition will provide DISH Network the extremely valuable spectrum of DBSD for both wireless and wireline communications. DISH Network currently owns a slot of the highly demanded 700 MHz wireless frequency. We believe management is currently trying hard to develop DISH Network for the storage of spectrums that can be used to develop a viable pay-TV distribution network or can be leased to telecom operators.
In the U.S., pay-TV market is highly competitive. During the fourth quarter of 2010, DISH Network lost around 156,000 net subscribers whereas its closest competitor DIRECTV (DTV) added 289,000 net subscribers.DISH Network continues to position itself as a low price leader in the U.S. pay-TV industry by subsidizing the cost of equipment and installation to increase subscriber base. Acquisition of DBSD will enable DISH Network to both enhance and expand its pay-TV offerings.
We maintain our long-term Neutral recommendation on DISH Network. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock.
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