The boutique firm Moffett Research upgraded shares of DIRECTV (NASDAQ:DTV) and DISH Network Corp (NASDAQ:DISH)s to “buy” on Thursday. The firm’s “buy” rating was not fundamental in nature, but rather based on the possibility of a merger. With that said, will this “merger” ever occur?
A Deal in the Making?
Moffett Research makes a compelling case for investing in the two largest satellite companies. Analyst Craig Moffet says that even after “pruning bad branches” from the two companies, the combined synergies from the deal would be “staggering.”
Moffett believes a DIRECTV (NASDAQ:DTV)/DISH Network Corp (NASDAQ:DISH) merger could represent $30-$40 billion in net present value, and is now possible thanks to Dish’s failed attempt to acquire Sprint and its decision to withdraw its bid from Clearwire.
For the last two years, whispers of a DIRECTV (NASDAQ:DTV)/DISH Network Corp (NASDAQ:DISH) merger have been consistent, as many believe the combined technologies could greatly impact its competitive advantage. The reason being technology, patents, and licensing agreements that these two companies have combined.
Currently, both companies pay for content, but a combination of the two companies would save a great deal on the content that both companies pay for the same channels, often creating bidding wars. DIRECTV (NASDAQ:DTV) is known for its cutting edge DVR technology and sports packages.
While DISH Network Corp (NASDAQ:DISH) has Blockbuster DVD rentals, a massive portfolio of streaming options, and has its spectrum approved for mobile, these small differences can create one great company combined, which would ultimately save on costs and increase margins (as noted by Moffett Research).
Using History as a Guide
Moffett has been ranked the #1 analyst in the U.S. Cable & Satellite sector for the last seven years, according to Institutional Investor Magazine. Therefore, he does have great knowledge of the space and we cannot discount his belief. With that said, I don’t see this merger happening, and for one reason: the FCC!
The Federal Communications Commission (FCC) must first approve any proposed deal, as their job is to determine the economic impact of such deals and its competitive effect on the market. Thus, to explain why this merger will not work, we can simply look back to the proposed acquisition of T-Mobile by AT&T Inc. (NYSE:T)
AT&T Inc. (NYSE:T) had attempted to purchase T-Mobile for $39 billion; a deal that would’ve created significant separation between it and Verizon as the number #1 and #2 U.S. carrier. The acquisition would have combined the #2 (AT&T Inc. (NYSE:T)) and #4 (T-Mobile) U.S. carriers.