Some bondholders wouldn't accept a discount, so DirecTV said it will give up its plan to buy rival Dish.
Bondholders of Dish parent EchoStar rejected DirecTV's acquisition terms for its satellite rival, casting uncertainty over the future for two main players in the declining satellite television industry. The proposal called for DirecTV to buy Dish for $1 and assume EchoStar's debt load, which sits at $9.75 billion. But the proposal would have required the bondholders of that EchoStar debt to give up at least $1.5 billion.
"The debt holders are saying, 'You need us to get the deal through, and we're not going to do it at that much of a discount,'" said Jonathan Chaplin, an analyst with New Street Research. "DirecTV is saying, 'We're paying full price for the asset and we don't have any more discount to give. And Dish is saying, 'We're selling the asset for nothing, for a dollar, so we've got no more value to give, either.' So there's an impasse."
The two companies had hoped that the deal would make at least one satellite TV provider viable in an era dominated by cord-cutting, and allow them to lower prices by cutting costs.
Now, DirecTV is walking away from the plan. "A successful [debt] exchange was a condition for acquiring the Dish video business," a DirecTV spokesperson said Wednesday in an email sent to The Washington Post and other news organizations. "Given the outcome of the EchoStar exchange, DirecTV will have no choice but to terminate the acquisition of Dish by midnight Nov. 22."
DirecTV and EchoStar said Wednesday that they can survive without joining forces.
EchoStar now has a "more robust foundation" for its business that is independent of the deal's outcome, spokesperson Ted Wietecha said Wednesday. He highlighted $2.5 billion in financing that EchoStar obtained in September to pay its upcoming debt maturity, as well as other funds that are unaffected by the transaction's failure.
DirecTV had hoped to add around 8 million subscribers from Dish and SlingTV, which is also owned by EchoStar. Dish, a well-known mainstay of satellite television, had been looking for a financial lifeline to keep it out of bankruptcy.
In a note Wednesday, Craig Moffett, an analyst for MoffettNathanson, said EchoStar is "all but insolvent" after the bondholders' rejection of the debt terms. The simplest path to get the deal back on track, Moffett wrote, would be for TPG Capital, the private equity firm that would own the merged DirecTV/Dish Network, to "sweeten the deal" for bondholders, but that seems unlikely since the companies have already attempted to boost the value of the proposed swap.
EchoStar bondholders have been vocal that a $1.5 billion discount is too high, so it's unsurprising that they rejected the deal's terms, Chaplin said.
Chaplin believes EchoStar bondholders are far better off with a bad deal than none at all, but there wasn't a robust back-and-forth discussion about the deal's terms, leaving all three parties unwilling to cede value, he said.