The competitive shake up in the retail industry has been profound. Once discrete industries are colliding and heavy-weight titans are gearing up. While Amazon has garnered a lot of attention and our long-term view there is quite clear, today we would like to present our strategic roadmap for Walmart. We consistently find that some of the best returns come when companies outside of the traditional tech universe wed industry expertise with modern technology to be better, faster, stronger. We believe there is a tremendous opportunity for the retailer from Arkansas to harness the power of spectrum and partner with the leader in live streaming video to create a transformative commerce powerhouse.
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Walmart + Dish: Crazy Like A Fox?
Amazon is public enemy #1 for every retailer, so we imagine Walmart spends a lot of time thinking about how to compete with Amazon. While many may think of Walmart as a stogey discount retail company, we believe Walmart has deep religion about technology and has the vision.
Warren Buffett: If You Own A Good Business, Keep It
Walmart Has Strong Ownership That Can Take The Long View
Walton Enterprises, family, and employees collectively own over 50% of WMT stock and collectively collect about $3 billion in dividends annually. This means Walmart can do what is right for the business in the long-term to increase shareholder value and grow the dividend for the next 50 years. So why is Dish right for the business in the long-term?
Dish’s Spectrum Would Let Walmart One Up Amazon
Spectrum, a finite resource, enables wireless connectivity. Walmart announced an interest in drone delivery in 2015 and recently filed a patent for a blimp-style floating warehouse. Spectrum enables drone delivery. Walmart owns all parts of its infrastructure (even designs trucks), and we believe ownership of spectrum (or at least a path to ownership) is mission critical for success. A wireless network would enable drones, self-driving trucks, and floating blimp warehouses. Those supercenters have enormous roofs—the drone aircraft carrier?
Spectrum is a critical finite resource and there is only one source of supply: Dish. The player that secures this spectrum will not only transform their own business, but importantly will prevent competitors from getting access to this mission critical asset.
What About DISH’s Satellite TV And Sling Businesses?
Satellite television is a declining business, but will be around for many years providing steady cash flow. Dish’s satellite business gave birth to Sling, which is the leading live over-the-top video (OTT) provider in the US. And we believe Sling leads the industry by a considerable margin. Walmart sells TVs and antennas in the store, so a dedicated area selling satellite and Sling content services would be appealing to Walmart customers.
Sling’s Targeted Advertising Product Sounds Very Attractive To Walmart And Its Vendors
Imagine Walmart had unexpected excess candy inventory after Easter at only the West Evans location in Denver, CO. The East Hampden Ave and Smith Road locations had normal levels. Walmart could run a targeted candy promotion on Sling for only the West Evans customers. No wasted ad spend, happy children, and inventory is now back within normal levels. This level of targeting would be game changing.
Walmart’s Board Has A Lot Of Wireless And Advertising Experience
Tom Horton is the Lead Director of Qualcomm and has been on the Walmart board since 2014 (wireless). He was also the CFO of AT&T in 2002 and helped create today’s AT&T with Cingular and SBC. Marissa Mayer is the former CEO of Yahoo and early Google employee and a Walmart board member since 2012 (advertising). Kevin Systrom runs Instagram and has been a Walmart board member since 2014 (mobile + advertising). This an extremely (if surprisingly) technology-savvy board that can provide valuable advice if Walmart were to acquire Dish. We also think Charlie Ergen, CEO of Dish, would be a great addition to the Walmart board given his experience and expertise in consumer + mobile + communication + video + advertising.
Walmart Has Been Making Innovative Technology Acquistions
Walmart acquired Jet.com in September 2016 for $3 billion followed by Bonobos, ModCloth, and Shoebuy.com earlier this year. Walmart also announced a strategic alliance with JD.com in June 2016. It has been reported that Walmart is looking at Birchbox, the subscription beauty and grooming supply company. An infrastructure enhancing acquisition in Dish would transform Walmart and give it the competitive technology platform it needs. Especially after Target acquired Grand Junction last week. Grand Junction provides software that manages local and same-day deliveries.
$80 Price Is A $52 Billion Enteprise Value And A Stock Transaction Makes Sense
Dish CEO Charlie Ergen owns roughly 240 million shares of DISH, and we believe a premium paid with dividend paying stock would be attractive for two reasons. First, 240 million shares of DISH exchanged one for one for WMT would mean nearly $500 million in annual dividend income plus tax flexibility and is easily covered by Walmart’s cash flow. Second, Charlie Ergen has two (2) tax advantaged GRAT structures in place for generational planning that would benefit greatly from an acquisition sooner rather than later.
Retail is an extremely competitive industry and is under intense secular pressure. We believe DISH, with its supply of mission critical spectrum and the leading live streaming video platform in Sling, is the key transformative technology asset to solidify Walmart’s vision of transforming the future of commerce.