WASHINGTON (dpa-AFX) - Shares of EchoStar Corp. dropped around 12 percent on Monday's regular trading and more than 1 percent in the extended trading on the Nasdaq after the firm agreed to sell its video distribution business Dish TV and digital business Sling TV to rival DirecTV for a nominal price of $1, plus the assumption of DISH DBS's net debt.
The combination of DIRECTV and DISH would create the largest pay-TV provider, benefiting U.S. video consumers with more flexibility and better value in the highly competitive video industry, which is at present dominated by streaming services of large tech companies and programmers.
With the move, EchoStar expects to get greater financial flexibility, and to be able to focus on launching a nationwide 5G Open RAN wireless service to compete with major carriers. The deal will also strengthen EchoStar's Boost Mobile brand as the fourth major facilities-based carrier in the U.S. Additionally, EchoStar plans to leverage its satellite assets to develop innovative direct-to-device solutions.
The sale would reduce EchoStar's total consolidated debt by $11.7 billion, and decrease its refinancing needs by around $6.7 billion through 2026.
The combined DirecTV - DISH video company is expected to have increased scale to incentivize programmers to allow DirecTV to deliver smaller packages at lower price points.
EchoStar noted that combined, DirecTV and DISH have collectively lost 63 percent of their satellite customers since 2016. Traditional pay TV penetration in U.S. households is now less than 50 percent.
Bill Morrow, Chief Executive Officer, DirecTV, said, 'DirecTV operates in a highly competitive video distribution industry. With greater scale, we expect a combined DirecTV and DISH will be better able to work with programmers to realize our vision for the future of TV, which is to aggregate, curate, and distribute content tailored to customers' interests, and to be better positioned to realize operating efficiencies while creating value for customers through additional investment.'
DirecTV estimates that the combination has the potential to generate cost synergies of at least $1 billion per annum. These synergies are expected to be achieved by the third anniversary of closing, assuming the closing is in the fourth quarter of 2025.
In a relative deal, TPG Inc., which holds the minority interest in DirecTV, agreed to acquire from telecom major AT&T the remaining 70 percent stake in DirecTV that it does not already own. AT&T expects to receive approximately $7.6 billion in cash payments from DirecTV and the buyer through 2029. Completion of the deal is not contingent on DirecTV's acquisition of DISH.
On the Nasdaq, EchoStar closed Monday's trading at $24.82, down 11.5 percent. In the after hours trading, the shares fell 1.3 percent further.
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