3 rd annual case competition yale graduate consulting club april 4, 2014 dish mobile a new horizon...
TRANSCRIPT
3rd Annual Case CompetitionYale Graduate Consulting Club
April 4, 2014
Dish MobileA New Horizon for Satellite Broadcasting
Though lucrative in the short term, regulatory issues likely to prohibit horizontal merger with DirecTV.
Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendation
Recommendation
Strategic merger for long-term growth through wireless bundling and streaming of video content.
Sources: FCC, Moffett Nathanson, DISH & NFLX 10-K
Market Analysis
Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendation
MVPD Market Breakdown 99.3 mn
DBS has no growth for the last 3 years
Over-The-Top Streaming is Growing Rapidly
20.1
14.1
21.912.1
4.5
4.1
4.9
4.8
Market Analysis
Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendation
The pay-TV industry has reported its worst12-month stretch ever.“
“Craig Moffett and Michael Nathanson, Media Stock Analysts
Market Analysis
Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendation
Charlie Ergen to D: Dive Into Media
I think people are cutting the cord, I believe it is less risky, long-term, to embrace change.“
“
Cash:Debt ($9.74 bn:$13 bn)H-block spectrum @ $ 1.5bn + $ 4.5 bn in other spectrum
No infrastructure for acquired spectrum Saturated pay-TV market
Dish Strategic Advantage
Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendation
Sources: Dish & DTV 10-K Financials
Dish experienced large decreases in revenue growth
Dish Pay-TV Net Additions(Thousands)
STRENGTHS WEAKNESSES
Strategy: A Time for Change
Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendation
Current EffortsExpand to New Markets
Future DirectionsMerge to ensure long-term growth
and create synergies
Valuation
We valuate that DirecTV is worth $59.06 bn @ $80.55 /share.Other estimates range from $57 bn - $80 bn
We propose a stock-stock exchange : 1 DirecTV = 1.17 Dish-DirecTV
Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendation
Dish + DirecTV Merger
Sources: Valuentum Equity Research
Market Share 14% 21% 34.1%
Customer Base 14 mn 21 mn 34 mn
Revenue $ 13.9 bn $ 31.8 bn $ 43.7 bn
Horizontal Merger
Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendation
Dish + DirecTV Merger
Sources: Valuentum Equity Research
Pros Cons
Synergies of $2.3 bn- Operation Efficiencies- Technology Innovations- Satellite Consolidations- Marketing & Ad Expenses
Uni-dimensional Satellite Pay TV Profile: A horizontal merger.
South and Latin American expansion FCC regulatory hurdles
Increased negotiating power
PROS CONS
“
Former FCC Chairman Michael Powell in Dissent of the Dish-DirecTV merger of 2002
The combination … would have us replace a vibrant competitive market with a regulated monopoly.“
Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendation
FCC & Dish + DirecTV Merger
MVPD Constraints HHI Increase
Current MVPD 363
MVPD + Over the Top 183
34.2
21.912.1
4.5
4.1
4.9
4.8
Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendation
Introducing Dish Mobile
Source: TVEverywhere.com
Switch to Dish Mobile today to enjoy uninterrupted internet everywhere!
Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendation
Introducing Dish Mobile
The Bundle Goes Mobile“
“
InternetTV
Phone
Dish T-Mobile
Satellites in orbit Cell towers and mobile infrastructure
$6 bn spectrum in H block, 700 MHz band and others
Mobile phone spectrum for voice, data
TV infrastructure and programming contracts
INTERNATIONALCOVERAGE!!
NO MORE WIRES!
Valuation
We valuate that T-Mobile is worth $29.00 bn @ 38.54 /share.Other estimates range from $26 bn - $36 bn
We propose a stock-stock exchange : 2.09 T-Mobile = 1 Dish Mobile
Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendation
Dish + T-Mobile Merger
Sources: Valuentum Equity Research
Market Share 14% 13% (wireless carrier) 14% + 13%
Customer Base 14 mn 43.4 mn 57.4 mn
Revenue $ 13.9 bn $ 24.1 bn $ 38 bn
Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendation
Dish-Mobile Growth Projections
Historical Data: Dish & T-Mobile Quarterly Reports
Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendations
Summary of Recommendations
Though lucrative in the short term, regulatory issues likely to prohibit horizontal merger with DirecTV.
Strategic merger for long-term growth through wireless bundling and streaming of video content.
[1] Dish Annual Report 2013[2] DirecTV Annual Report 2013[3] FCC 15th annual report for MVPD Market[4] Dish Fiscal 2014 quarterly report[5] DirecTV Fiscal 2014 quarterly report[6] Financial Statements for Dish, Inc. - Yahoo Finance[7] Financial Statements for DirecTV, Inc. – Yahoo Finance[8] WSJ research report for DISH and DTV[9] T-Mobile Annual Report 2013[10] T-Mobile Fiscal 2014 quarterly report[11] IBISWorld Industry Report on Mobile Carriers[12] IBISWorld Industry Report on PayTV[13] Professor Robert F. Bruner Valuation Analysis[14] Macabacus Valuation Spreadsheets
Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendations
References
3rd Annual Case CompetitionYale Graduate Consulting Club
April 4, 2014
Appendix
Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendation
Pay TV Market Trends
MVPD Market Analysis
Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendation
Source: National Cable and Telecommunications Association
Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendation
Cable Price to CPI
You now pay 48% more for Expanded Basic than you did in 1986*
Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendation
Broadband Deployment
Market Analysis Strategy Dish + DirecTV Dish + T Mobile Recommendation
Potential Global Markets
Source: Rethink Technology Research
Market Analysis Strategy Dish + DirecTV Dish + T Mobile Recommendation
Mexico & Latin America Satellite TV Figures
Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendation
WACC
Dish DirecTV
Discount rate = Rf + MRP*Beta(Assets)
Rf 2.72% Rf 2.72%
MRP 6% MRP 6%
Beta(assets) 0.96 Beta(assets) 0.72
Discount rate 8.49% Discount rate 8.07%
E 28.32 E 38.61
D 13 D 18
C 10 C 2.3
Beta(Equity) 1.05 Beta Beta(Equity) 0.93
Beta (Assets) 0.96 Beta(Debt) 0.2
Beta (Assets) 0.72
Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendation
Valuation Dish
Perpetual Growth Rate = 2.20% Perpetual Growth Rate = 2.70% Perpetual Growth Rate = 3.20%
Discount Rate 8.00% 8.50% 9.00% 8.00% 8.50% 9.00% 8.00% 8.50% 9.00%
FCF over Projection Period
11,745.0
11,496.4
11,256.2 11,745.0 11,496.4 11,256.2
11,745.0
11,496.4 11,256.2
Terminus 16,945.8
14,930.7
13,241.2 18,635.2 16,297.2 14,362.0
20,676.6
17,921.4 15,676.1
Company Value 28,690.8
26,427.1
24,497.4 30,380.2 27,793.6 25,618.2
32,421.6
29,417.9 26,932.3
Company Value Attribution
% Value in Projection Period
40.9% 43.5% 45.9% 38.7% 41.4% 43.9% 36.2% 39.1% 41.8%
Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendation
Valuation DirecTV
Perpetual Growth Rate = 2.20%
Perpetual Growth Rate = 2.70% Perpetual Growth Rate = 3.20%
Discount Rate 7.50%
8.00% 8.50% 7.50% 8.00% 8.50% 7.50% 8.00% 8.550%
Company Value Calculation
FCF over Projection Period 25,282
.6
24,211.1
23,210.3
25,282.6
24,211.1 23,210.3 25,282.6 24,211.1 23,210.3
Terminus 41,444
.4
31,928.0
25,252.8
45,985.4
34,850.1 27,242.3 51,582.5 38,323.5 29,547.6
Company Value 66,727
.0
56,139.1
48,463.1
71,268.0
59,061.2 50,452.6 76,865.1 62,534.6 52,757.8
Company Value Attribution
% Value in Projection Period 37.9%
43.1% 47.9% 35.5% 41.0% 46.0% 32.9% 38.7% 44.0%
Market Analysis Strategy Dish + DirecTV Dish + T Mobile Recommendation
HHI Calculations
MVPD Market Pre-merger Post-merger New HHI
Current Market 1755 1940 185
Comcast/TWC Merger Market 2463 2648 185
With Streaming Pre-merger Post-merger New HHI
Current Market 1573 1936 363
Comcast/TWC Merger Market 1912 2276 364
>100 = highly competitive; >1500 = unconcentrated; >2500 = moderately concentrated; <2500 = highly concentrated
Increases over 100 provoke scrutiny by the DoJ
Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendation
Valuation Dish + DirecTV
Pro Forma Earnings Impact 2013 2014E 2015E 2013 Contribution Analysis Dish DirecTV
Dish's Stand-Alone EPS $5.75 $5.98 $6.22 Revenues 30.4% 69.6%
Dish + DirecTV's Combined EPS $3.83 $3.91 $4.15 EBITDA 36.8% 63.2%
Accretion / (Dilution) -33.3% -34.6% -33.3% Dish + DirecTV Shares 530.0 509.0
% Ownership 51.0% 49.0%
Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendation
Comparison of Wireless Carriers
33% Market Share 30% Market Share 17% Market Share 10% Market Share
$33.2B $31.1B Revenue $7.2B Revenue $5.3B Revenue
$90/Month $110/Month $80/Month $70/Month
Source: IBISWorld; WSJ
Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendation
Operational Efficiencies
Operational Efficiencies 2.3 2.8
Components Satellite SalesWorkforceMarketing
Market PromotionMarketing
2.3 bn =
0.7 bn from reduced marketing expenses0.4 bn from satellite divestment0.5 bn from improved contract negotiations0.7 bn from reduced employees
2.6 bn =
2.0 bn increased sales (bundling)0.2 bn divestment of Airwaves0.4 bn New Technologies?
Dish + T-Mobile Merger
Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendation
Source: Cisco, 2013
It's going to be hard to convince consumers that reducing four firms to three is actually going to improve competition for their benefit.
“
About Sprint & T-Mobile Merger, William J. Baer, Assistant to the Attorney General
“
T-Mobile Subscriber Growth
Net
Ad
dit
ion
s (t
ho
usa
nd
s)
Assumptions
- Quarterly EBIT tracks inflation
- 80% bundling discount
- 5% sign-up crossover/qtr
Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendation
Bundling Projection Assumptions
Market Analysis Strategy Dish + DirecTV Dish + T-Mobile Recommendation
Valuation Dish + T-Mobile
Pro Forma Earnings Impact 2013 2014E 2015E 2013 Contribution Analysis Dish T-Mobile
Dish's Stand-Alone EPS $1.89 $1.33 $1.35 Revenues 36.6% 63.4%
Dish Mobile's Combined EPS $0.70 $0.69 $1.39 EBITDA 49.0% 51.0%
Accretion / (Dilution) -62.9% -48.3% 2.5% Dish Mobiles Shares 945.9 802.0
% Ownership 54.1% 45.9%