1MORNINGSIDE GROUP

MORNINGSIDE GROUP

2014 YALE CASE COMPETITION

INIGO BERGARECHE

LUKAS DIDON

YONI PASTERNAK

SOPHIA PORRINO

XIAOJIE ZHING

DISH should offer $39.2B in stock to consolidate with DirecTV

Satellite TV Multi-Play BundleInternet TV

Recommendation

● Gain operational and organizational efficiencies

● Gain 35M customers

● Leverage with customers

● Access content rights

● Increase advertising revenue

● Capital for wireless acquisition

● Capital for internet

● Leverage with content providers

● Respond to seismic industry changes● Access more customers and international

market

Industry Overview

Creation

Value Chain

Aggregation

Distribution

Consumption

Content creatorsRight holders

Description

Right dealersProgram packagesContent agregators

Network operatorsAccess providers

Device usersDevice manufacturers

Fox, BBC, Disney, Sony, Universal

Key Players

ESPN, ABC, DiscoveryHBO, FOX, Veoh, Google

Netflix, Hulu

TV: Comcast, DirecTV, Dish, TWCInternet: Comcast, AT&T, VerizonPhone: Verizon, AT&T, Sprint, Century Link

Apple, Samsung, LG, HTC, Cisco

● 35M new customers● 96% market share of 2.3% US

revenue growth● Fast-growing (24%) Latin

American market● Leverage with customers and

content providers

Satellite TV Trends

IBIS world

Enter OTT market:● Very fast growing (50% YoY)● $20B projected 2015 US

market● 20% all video consumption

by 2016

Internet TV Trends

IBIS world

• Increase advertising revenue (DirecTV- FreeWheel)

• Utilize access to content providers• DISH: Blockbuster & Disney • DirecTV: NFL and other sports

● Trend towards bundling (2% predicted growth rate)● Utilize DISH’s spectrum (worth $12-25B) to enter wireless market

(acquire T-Mobile)● Internet TV traffic on wireless networks is steadily increasing

Multi-Play Bundling Trends

Digital TV Research Ltd.

● Offer a bid of $39.2 B in stock to DirecTV● Merge to form a new venture DISHDirecTV● Max bid $47.3B

Deal Structure

Company Stock Price

($/share)

Share Outstanding

(M)

Market Cap.(M)

Ownership of the new

venture

Stock-to- Stock

exchange ratio

DISH 64.07 458.3 29,363 42.5% 0.90

DirecTV 77.98 510 39,770 57.5% 1.09

DISHDirecTV 71.40 968.3 69,133 - -

● Reduce competition● Increase leverage over content providers and customers● Improve operating efficiency (estimated 1.7B annual cost saving) ● Increase financial flexibility

Synergies

DirecTV Dish Merger w/o

synergy

Merger w

synergy

SG&AE saving

SG&AE 6,975 2,304 9,279 7,565 1,714

Revenue 31754 13905 45659 45659 -

Overhead % 21.97 16.57 20.32 16.57 -

Organizational Structure

DISH DirecTV

CEOCFO &

Deputy CEO

2 Board Members 2 Board Members

HR Director

10MORNINGSIDE GROUP

APPENDIX

11MORNINGSIDE GROUP

Regulatory landscapeAnti-trust hurdles: merger could be denied• 1 M more subscribers than Comcast & TWC (34 M vs. 33 M)• Subscribers occupy overlapping geographic regions• Direct competitors (however increasing competition from Internet TV)

Undermine Comcast & TWC merger• Regulators might become concerned about two giants dominating the market and deny

both mergers

Good Timing & Regulatory Feasibility needs to be seeked• Different regulatory environment now than in 2002 when bid failed

• Rise of cord-cutting makes a monopoly less of a risk now• In 2008 two competing satellite companies received permission to merge (Sirius and

XM satellite)• Dish-DirectTV merger would counterbalance Comcast & TWC giant

• Dish and DirecTV (unlike Comcast & TWC) wouldn’t have a chokehold on Internet TV• Satellite TV can be bundled with Internet service, but it’s either through partners or,• in Dish’s case, through satellite-based Internet, which is not an adequate option

• Historically, second-term presidencies avoid antitrust cases

12MORNINGSIDE GROUP

Max Bid

Comcast and TWC deal        

 Pre-merger Stock Price

Share outstanding Market Cap Bid premium

TWC 137 277.45 38010.65 45200 0.19

DirecTV 77.98  510 39,770 47292 0.19

REFERENCES1. Accenture’s Bringing TV to Life Series: Issues I-III; http://www.accenture.com/SiteCollectionDocuments/PDF/

Accenture_Communications_Media-Entertainment_OTTV_Future_of_TV.pdf; 2. IBISWorld’s Industry Research: Telecommunications, Satellite TV, Internet Industries3. http://ir.netflix.com/long-term-view.cfm4. http://www.nytimes.com/2010/12/06/business/media/06rabbitears.html?pagewanted=all&_r=05. http://www.forbes.com/sites/dorothypomerantz/2014/03/31/why-a-directv-dish-network-merger-might-be-

different-this-time-around/6. http://www.forbes.com/sites/realspin/2014/02/27/competition-will-not-survive-the-comcast-time-warner-

merger/7. http://www.businessweek.com/articles/2014-03-27/will-directv-and-dish-catch-cables-merger-fever8. http://www.businessweek.com/news/2014-03-26/ergen-directv-overture-puts-dish-in-play-as-at-and-t-waits-

real-m-and-a9. http://news.investors.com/technology/033114-695292-dish-stock-valuation-spectrum-monetization-network-

build-out-scenarios.htm#ixzz2xgbOkryr 10. http://www.theregister.co.uk/2014/03/31/dish_directv_merger/11. http://variety.com/2014/digital/news/dishs-disney-deal-gives-the-satcaster-rights-for-a-virtual-mso-foray-but-

making-that-a-reality-wont-be-easty-1201129635/12. http://variety.com/2014/biz/news/new-data-confirms-pay-tvs-slow-decline-will-cord-cutting-trickle-become-

become-gusher-1201139302/13. http://247wallst.com/media/2013/10/10/would-a-directv-dish-merger-still-make-a-new-pay-tv-media-

monopoly/#ixzz2xhMcmPns 14. http://www.fool.com/investing/general/2014/03/27/will-a-directv-dish-network-merger-happen.aspx15. http://beta.fool.com/valuentum/2013/03/20/-185/27508/16. http://www.digitaltvnews.net/?p=21612