Transcript Matchpoint Solutions

Merger or
Strategic Shift?
BY MATCHP INT SOLUTIONS
MATCHP INT SOLUTIONS
Key Recommendations
Do Not
Merge
with
Establish a
Joint Venture
with
Explore Further
Growth
Opportunities
Key Recommendations  Industry Trends  Merger Issues  Sprint  Further Opportunities
MATCHP INT SOLUTIONS
Rather than offer a bid to merge with DirecTV LLC, Dish should form a joint
venture with Sprint and move into the wireless broadband space
Do Not Merge With
Short Term: Establish a
Joint Venture with
Long Term:
Explore Further Growth
Opportunities
• Merger likely to be
blocked2
• Industry Trends:
Service Consolidation
• Content partnership
expansion
• Human Capital
Implications3,4,5
• Fully leverage
spectrum assets
• Meeting Human Capital
Demands
• Merging WithinIndustry Not
Expansionary1
• Capture underserved
areas
• Meeting Consumer
Demand
Key Recommendations  Industry Trends  Merger Issues  Sprint  Further Opportunities
MATCHP INT SOLUTIONS
Industry Trends
The Rise of
Fixed-Wireless
Broadband
Key Recommendations  Industry Trends  Merger Issues  Sprint  Further Opportunities
MATCHP INT SOLUTIONS
Industry Trends
Pay-TV is a mature market with flattening overall
growth
• Loss of 105,000 subs in 2013
• Programming cost growing steadily at ~9.6%
• Changing consumer demand
Sat-TV subs gains in the Pay-TV market are on the verge of
reversal
• Telecom subs gains (~1.5mm) are head and shoulders above
Cable (1.7mm loss) and Sat-TV (170k)
• Dish and DTV gross add trends are both stalling,
(+0.0% vs. + 0.8%)
Key Recommendations  Industry Trends  Merger Issues  Sprint  Further Opportunities
MATCHP INT SOLUTIONS
Industry Trends
Efforts to expand beyond the market is the future
• Bundled services reduce churn and increase per customer revenue
• Rural underserved population (<6Mps) equals a 54mm household
opportunity
Changing consumer demands in the Pay-TV market
• Netflix subscribers and growth dwarf all competitors with
2.3mm new subs in Q4 2013 alone.
• Different players are jumping into the Pay-TV market.
Sat-TV is stalling in a stalling Pay-TV market. It’s time to move on.
Key Recommendations  Industry Trends  Merger Issues  Sprint  Further Opportunities
MATCHP INT SOLUTIONS
Do Not
Merge
with
Establish a
Joint Venture
with
Explore Further
Growth
Opportunities
Key Recommendations  Industry Trends  Merger Issues  Sprint  Further Opportunities
MATCHP INT SOLUTIONS
The Case Against Merging
Merger likely
blocked
• Government regulations are a roadblock2
• Chances higher under a Republican administration2
• Competition reduction, especially in rural areas2
Human Capital
Implications
• Unique culture and leadership strategy at Dish3
• Cultural problems plague M&A’s4, 5
Merging WithinIndustry Not
Expansionary
• Dish should explore strategic options1,2
• DirecTV and Dish opposed on spectrum opportunity2
Key Recommendations  Industry Trends  Merger Issues  Sprint  Further Opportunities
MATCHP INT SOLUTIONS
Key Recommendations
Do Not
Merge
with
Establish a
Joint Venture
with
Explore Further
Growth
Opportunities
Key Recommendations  Industry Trends  Merger Issues  Sprint  Further Opportunities
MATCHP INT SOLUTIONS
Should establish a joint venture with
Pre-existing
Infrastructure
Supports a Strategic
Partnership
A joint venture will cause
market penetration
and expansion
• Dish’s wireless
spectrum7
• 54M Household
Opportunity9
• Sprint LTE capacity8
• LTE Broadcast
Opportunity10
• Pilot LTE/Broadcast
program in TX3
• Combined potential
revenues of $24B
Shared resources will lead
to savings of
$1.6B in CapEx
• No additional
expenditure on
infrastructure
• Leveraging existing
expertise1
• Market share gain
of +6%
Key Recommendations  Industry Trends  Merger Issues  Sprint  Further Opportunities
MATCHP INT SOLUTIONS
Pre-Existing Infrastructure Supports a
Strategic Partnership
Expansive
national cellular tower network;
not enough spectrum, even with
Clearwire acquisition;
Limited LTE Distribution
Hybrid
LTE/Broadband
700MHz E Block LTE/Broadcast;
need LTE capability
PCS H Block  Fixed Wireless
Broadband; need Cell Towers
Source: SEC.gov
Key Recommendations  Industry Trends  Merger Issues  Sprint  Further Opportunities
MATCHP INT SOLUTIONS
A Partnership will Serve Underserved Households
Target Reach
$11.0bn
Basic
Offering
Direct-to-home TV or
Mobile Content
$16.5bn1
Projected
Revenue
Total Underserved HHs (M)
Target Reach HHs (M)
55.5
9
16%2
55
Underserved
HHs
54.5
54
Premium
Offering
5
53
4
Simultaneous multicast:
2nd Screen capability
3
52
19% (+6pt) Share in
Pay TV HHs!3
7
6
53.5
52.5
$5.5bn
8
51.5
2
51
1
50.5
0
2015
2016
2017
2018
2019
1 Conservative approach assuming competitive activity
2 Match Sprint current share (source: Ibisworld)
3 Vs 2013 current share within Pay TV (source: S&P)
Key Recommendations  Industry Trends  Merger Issues  Sprint  Further Opportunities
MATCHP INT SOLUTIONS
Shared Resource will lead to $7.5bn Synergies
$5.9bn Cost
Savings
• CPGA
• CCPU
• G&A
$1.0bn/year, growing to $1.4
runrate by Year 4
$1.6
Capex
Reduction
$7.5bn
synergies
by Year 5
Year 1 assumption
Source: SEC.gov
Key Recommendations  Industry Trends  Merger Issues  Sprint  Further Opportunities
MATCHP INT SOLUTIONS
Total NPV of $24 billion in 5 Years
Expansion
Cost
Projected
Gains
Key Recommendations  Industry Trends  Merger Issues  Sprint  Further Opportunities
MATCHP INT SOLUTIONS
Key Recommendations
Do Not
Merge
with
Establish a
Joint Venture
with
Explore Further
Growth
Opportunities
Key Recommendations  Industry Trends  Merger Issues  Sprint  Further Opportunities
MATCHP INT SOLUTIONS
Further Growth Opportunities
Expand Future Content
• Current partnership with
• AutoHop technology as leverage
Becoming an ISP through fixed-wireless broadband
Human Capital Demands
Expand in-house expertise on
wireless 4G capability.
•
Retraining existing
technicians
•
Hiring hardware
engineers
•
Hiring software and UX
engineers
Leadership – executive
communication liaison.
Test Future Strategic Partnerships
• Building strategic partners in the set-top box wars
Key Recommendations  Industry Trends  Merger Issues  Sprint  Further Opportunities
MATCHP INT SOLUTIONS
Do Not
Merge
with
Questions
Establish a
Joint Venture
with
Comments
Explore Further
Growth
Opportunities
Clarifications
MATCHP INT SOLUTIONS
References
1.
Keil, T. & Laamanen, T. (2011, 12). When rivals merge, think before you follow suit. Harvard Business Review, 89(12), 25-27. Retrieved from http://web.a.ebscohost.com/ehost/detail?sid=9daf39a968d4-4327-8c50-b4abf851a19b@sessionmgr4005&vid=1&hid=4109&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ==
2. Lieberman, D. (2014, 03, 31). Dish network-DirectTV merger? don't bet on it, analysts warn. Retrieved, from http://www.deadline.com/2014/03/dont-bet-just-yet-on-a-dish-network-directvmerger-analysts-warn/
3. Hannan, C. (2013, 01, 02) Dish Network, the Meanest Company in America. Businessweek.com, Retrieved from:http://www.businessweek.com/articles/2013-01-02/dish-network-the-meanestcompany-in-america
4. Weber, R. A., Camerer, C. F. (2003). Cultural Conflict and Merger Failure. Management Science 49(4), 400-415.
5. Stahl, G. K., & Voigt, A. Do Cultural Differences Matter in Mergers and Acquisitions? A Tentative Model and Examination. Organization Science 19(1), 160-176. Retrieved from:
http://www.jstor.org/stable/25146169 .
6. Christensen, C. M., Alton, R., Rising, C., Waldeck, A. (2011). The New M&A Playbook. Harvard Business Review, 89(3), 48-57.http://www.extremetech.com/electronics/177897-dish-securesspectrum-for-150mbps-lte-to-rural-homes-in-the-us
7. http://www.rethink-wireless.com/2013/12/18/sprint-dish-trial-fixed-lte-service.htm
8. http://newsroom.sprint.com/news-releases/sprint-and-dish-to-trial-fixed-wireless-broadband-service.htm
9. http://www.sec.gov/Archives/edgar/data/101830/000110465913029234/a13-10109_2425.htm
10. Dish secures spectrum for 150Mbps LTE wireless broadband to rural homes in the US | ExtremeTech
11. http://blogs.hbr.org/2011/07/the-soft-things-that-make-merg/
12. http://hbr.org/2009/10/mergers-that-stick/ar/1
13. http://www.forbes.com/sites/dorothypomerantz/2014/03/31/why-a-directv-dish-network-merger-might-be-different-this-time-around/
14. http://variety.com/2014/biz/news/dish-sets-stage-for-directv-merger-with-transfer-of-satellites-analyst-12011153383
15. http://www.deadline.com/2014/03/dont-bet-just-yet-on-a-dish-network-directv-merger-analysts-warn/
Other References:
- Mergent
- S&P NetAdvantage Capital IQ
- Bloomberg
- ValueLine
- WSJ – All Things D
MATCHP INT SOLUTIONS
Appendix
Arguments in favor of merger
with
Arguments against merger with
•
Creates a formidable Cable-TV company by pooling
resources against Comcast should their TWC
merger go through, we can match customer base
and remain competitive.
•
Merger likely to be blocked, as it was in 2002. Talks of
a merger were brought up in 2011 and didn’t work
out. Rural customers would have reduced options
which may raise the ire of federal regulators.
•
Human capital/infrastructure cost reduction.
•
Cost reductions remain a short-term issue, long-term
cultural incompatibilities may be a larger issue.
MATCHP INT SOLUTIONS
Appendix
Competitive
Reactions
Technological
Roadblocks
Legislative Roadblocks
•
Creates a formidable CableTV company if the ComcastTWC deal goes through
•
•
•
Human capital cost
reduction
Net-Neutrality issues
currently, however content
service intermediaries like
Netflix are slowly addressing
this by paying more.
•
Merging within-industry is
not expansionary.
•
Wireless signal reliability will
require extensive testing and
will be highly contingent
upon the training that is
done for field technicians
May be seen as expanding Sprint in a way that is
uncompetitive (Sprint and T-Mobile’s was
blocked), however federal regulators should see
the value of diversification where it is not just
wireless telecoms competing against each other.
Our joint venture is in line with the ideals of free
market competition and should bring about
competitive prices through a new space.
•
Lightsquared previously was blocked from
developing LTE/Sat hybrid technology due to
interference with GPS frequencies – this is not an
issue with Dish’s H-block spectrum.
MATCHP INT SOLUTIONS
Appendix
Size of Prize
Total HHs (in mm)
Pop growth (CAGR)
Total Underserved HHs
(<6Mbps)
Underserved HH growth
Target Reach HHs (in mm)
% Target Among
Underserved HH's
Market Share Gain (HH's)
Projected Market Share
(HH's)
2015
104
7%
2016
111
7%
2017
119
7%
2018
127
7%
2019
ASSUMPTIONS
136
7% Assuming flat pop growth (Source: http://data.worldbank.org/indicator/SP.POP.GROW)
54
4%
1.1
55
2%
2.8
55
0%
4.4
54
-2%
6.5
52
-4% Assuming some penetration increase and competitive activity
8.3 23 mm HH's by year 5
2%
1%
5%
2%
8%
4%
12%
5%
16% Match Sprint current share (16%) in wireless (source: Ibisworld)
6%
14%
15%
17%
18%
19% Dish current share: 37% w/in satellite (35% of total pay TV) = 13% (source: S&P, Ibisworld)
Projected Revenue
2015
Pricing ($) - 1 year
subscription
Basic
Units (mm)
1.1
Basic units (mm) 0.9
Rev from Basic ($bn) 0.5
Premium units (mm) 0.2
Rev from Premium ($bn) 0.3
Revenue ($ bn)
0.8
2016
2017
600
2.8
2.2
1.3
0.6
0.7
2.0
4.4
3.5
2.1
0.9
1.1
3.2
2018 2019
Premiu
m
1200 Basic - $50/mo; Premium - $100/mo
6.5
8.3
5.2
6.6
3.1
4.0
1.3
1.7 80% Basic, 20% Premium
1.6
2.0
4.7
6.0
Synergies ($bn)
Cost Savings ($bn)
Cost Per Gross Addition
(CPGA)
Cash Cost Per User (CCPU)
G&A
Capex Reduction
2.6
1.0
1.0
1.0
1.0
1.0
1.4
1.4
1.4
1.4
0.5
0.4
0.2
1.6
0.5
0.4
0.2
0.5
0.4
0.2
0.6
0.5
0.3
0.6
0.5
0.3
Net Present Value
Cumulative NPV ($bn)
Yearly NPV
Value to Sprint
Target New Subscribers
(mm)
Cumulative New
Subscribers (mm)
2015
3.4
3.4
2015
2016
6.4
3.0
2016
2017
10.7
4.2
2017
2018
16.7
6.1
2018
2019
24.1
7.4
2019
2.2
5.7
9.2
13.5
17.2 2.6 persons per HH (source: census.gov); assumed 80% are mobile users
2.2
8.0
14.9
22.6
30.7
20% reduction in SEC filing assumptions
+$0.1bn increase in runrate by Year 3
Source: http://www.sec.gov/Archives/edgar/data/101830/000110465913029234/a13-10109_2425.htm
20% reduction in SEC filing assumptions; Year 1 only