Dish Still Has Options on its Plate

TheStreet.com

NEW YORK (TheStreet) -- In a surprise move Friday, Dish Network said it won't continue its pursuit of Sprint, even though Chairman Charlie Ergen still had time to submit a new offer to block SoftBank's deal to buy Dish.

Ergen ended an eight-month drama, and may have ended Dish's interest in Clearwire, which Sprint has been battling Dish to preserve.

Meanwhile, SoftBank, which last week increased its bid to buy Sprint to $21.6 billion, is the biggest winner here, especially since Sprint's attractiveness was due in part to its stake in Clearwire, which has valuable wireless spectrum.

SoftBank can now enter the U.S. wireless market. CEO Masayoshi Son says the Japanese wireless market has become saturated.

The offer for Sprint, the third largest wireless carrier in the U.S., will be voted upon by shareholders on Tuesday. The deal would give SoftBank 80% of Sprint. Both sides feel that the deal could be closed as early as July. I don't see a scenario where it won't be approved, especially since Sprint's largest shareholder, Paulson & Co., supports the transaction.

Last week, I described Ergen's maneuvering for Sprint and Clearwire as a manner of survival. Now Ergen is admitting that he couldn't keep up with SoftBank's seemingly endless ammunition. But nothing's changed. Ergen still needs to act.

The satellite TV industry like cable, has limited upside. It is still under attack from the emergence of pay TV/entertainment outlets like Netflix and Amazon's Prime. And the sector is getting more crowded with Apple's iTV and possibly Intel.

What's more, Dish remains in a battle with DirecTV. Dish trades at a premium to DirecTV, even though DirecTV has done much better in metrics like revenue growth, gross margin and operating margin.

The disparity between Dish's stock and that of DirecTV is more glaring with Dish's mobile broadband strategy now seemingly off the table. Dish investors are left to wonder what Ergen is going to do next to respond in these games of thrones. HBO would be proud.

Ergen needs to plot his next move fast, because I don't believe that Wall Street will continue to pay an expensive premium for Dish's stock.

The game is far from over, however. Ergen can still go after a mobile company such as T-Mobile, which recently acquired MetroPCS.

The thriving mobile broadband market is attractive for Ergen. He desperately wants Dish to build its capablity to offer high-speed Internet, video and voice services to its customers whether they're at home or on the go. T-Mobile does not bring the reach of Sprint, but I don't believe Ergen should ignore it as an option.

DirecTV is in the same boat - or in this case - same orbit. It also has to be concerned about the long-term state of the satellite industry - although the company has not been as aggressive as Dish in trying to alter its fate.

These two could even come together in a merger as a "last resort" type of a deal. There is precedent with Sirius XM when both Sirius and XM operated as the two lone satellite radio companies prior to their merger in 2008. One or both would have been killed off without the merger. The combined company has become more valuable, even in the face of emerging threats like Pandora.

I can only speculate about the value that a combined Dish and DirecTV would bring to shareholders, and I'm not convinced that this idea will ever be on the table. But it should be. Weirder things have happened.

So for now, while Dish has lost out to SoftBank for Sprint, Ergen has more pieces to play.

At the time of publication, the author was long Apple.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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