Strategic Acquisition Could Give Dish a Push in Market Share

Dish Network (NASDAQ:DISH) has moved to acquire satellite operator DBSD North America, which is restructuring its business after bankruptcy. So, why is Dish Network acquiring a bankrupt business? The move could give Dish Network an edge vs. competitors in satellite pay-TV as well as cable/telecom providers. Dish competes with satellite pay-TV providers like DirecTV (NASDAQ:DTV), cable companies like Comcast (NASDAQ:CMCSA) and Time Warner Cable (NYSE:TWC), and telecom operators like AT&T (NYSE:T) and Verizon (NYSE:VZ).

Due to improved margins in Dish Network’s earnings release last month, we previously updated our price estimate for Dish Network’s stock to $27.77. Our price estimate stands at a premium of roughly 20% to market price.

Spectrum Addition – Strategic Investment

The primary reason behind Dish’s interest in DBSD is access to broadband spectrum. Some experts believe that Dish could potentially use this spectrum to build out a wireless network that supports data and voice. ^[1] According to one analyst from Kaufman Brothers:

“Dish also has some spectrum, and if you put DBSD and Dish together you could create a 4G or LTE network — it’s a situation where one plus one equals three.” ^[1]

The analyst also estimates DBSD’s value to be between $2 billion to $3 billion, implying that Dish is getting it at a nice discount. Given the potential opportunities, this could be a significant long-term play for Dish.

Dish does not have a competitive bundled offering and the spectrum could well be the answer. Dish would, however, need to get the required waiver from the FCC of its Ancillary Terrestrial Component Service Rule. ^[2]

This move could also give Dish an edge against its direct competitors and revive the company from its recent struggles with subscriber growth. If the company can build on the long-term opportunity present here, its subscriber growth and market share could see healthy upside.

The interactive chart above illustrates how changes in Dish Network’s pay-TV market share can impact the company’s stock value.

See our full analysis and $27.77 price estimate for Dish Network

1. Dish Network Poised to Land DBSD for $1 Billion, The New York Times DealBook, Feb 1 2011 [↩] [↩]
2. DISH to Buy DBSD: Why Does Charlie Ergen Want to Own Two Bankrupt Satellite Companies, HedgeFund Live, Mar 15 2011 [↩]