Charlie Ergen, CEO of DISH Network Corp (NASDAQ:DISH) recently approached Mike White, CEO of DIRECTV (NASDAQ:DTV) and discussed the possibility of combining the two satellite television service providers, according to a report from Bloomberg based on information from people familiar with the issue.
The shares of DIRECTV (NASDAQ:DTV) increased more than 6% to $77.85 per share while DISH Network Corp (NASDAQ:DISH) gained more than 7% to $62.81 per share today because of the report.
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White is hesitant to engage in formal talks
According to one of the sources who requested anonymity because of the confidential nature of the information, Ergen discussed a potential merger with White in response to Comcast Corporation (NASDAQ:CMCSA) latest move to expand its operations by acquiring Time Warner Cable Inc (NYSE:TWC) for $45 billion.
The source said White is hesitant to engage in formal negotiations because of regulatory concerns. Another person opined that regulators could reject a merger between DIRECTV (NASDAQ:DTV) and DISH Network Corp (NASDAQ:DISH) because the companies are direct competitors.
In addition, one of the sources also commented that the management of DIRECTV (NASDAQ:DTV) does not consider the agreement between Comcast Corporation (NASDAQ:CMCSA) and Time Warner Cable Inc (NYSE:TWC) – even if regulators approve it – as a reason to obtain regulatory approval of a proposed merger with DISH Network Corp (NASDAQ:DISH). Regulators already rejected the attempt of both companies to merge in 2002.
Despite White’s reluctance, one of the sources said he has not entirely ruled out the possibility of striking a merger transaction with Ergen. Last December, White stated, “In about a third of the country, you’d go from three to two [satellite providers]. And while I certainly believe our industry has changed substantially, and I believe there are a lot of reasons why consolidation in our industry would be pro-consumer to try and improve the balance between programmers and distributors, you still have to go sell that in Washington.”
Ergen believes there is a business case for consolidation
In November, Ergen stated that there is an obvious business case for consolidation in the satellite industry. According to him, “You’re going to see consolidation, maybe first in the cable industry. You’re seeing in the government’s part that they do negotiate things within the airline side, so it makes a lot of sense.”
Ergen referred to the willingness of the government to settle antitrust issues in the airline industry. At the time, American Airlines and US Airways reached a settlement agreement with the Department of Justice, and allowed the merger negotiation between the companies to continue. Ergen said, “Whether that ever comes to fruition is another story, but I mean I think both DISH and DIRECTV realize that that can make a lot of sense.”