Wolves of Wall Street - Yale Graduate Student Consulting Club

Report
Dish Mobile
A New Horizon for Satellite Broadcasting
3rd Annual Case Competition
Yale Graduate Consulting Club
April 4, 2014
Recommendation
Though lucrative in the short
term, regulatory issues likely
to prohibit horizontal merger
with DirecTV.
Strategic merger for longterm growth through wireless
bundling and streaming of
video content.
Market Analysis
Strategy
Dish + DirecTV
Dish + T-Mobile
Recommendation
Market Analysis
DBS has no growth for the last 3 years
MVPD Market Breakdown 99.3 mn
20.1
4.8
14.1
4.9
4.1
Over-The-Top Streaming is Growing Rapidly
4.5
12.1
21.9
Sources: FCC, Moffett Nathanson, DISH & NFLX 10-K
Market Analysis
Strategy
Dish + DirecTV
Dish + T-Mobile
Recommendation
Market Analysis
“
“
The pay-TV industry has reported its worst
12-month stretch ever.
Craig Moffett and Michael Nathanson, Media Stock Analysts
Market Analysis
Strategy
Dish + DirecTV
Dish + T-Mobile
Recommendation
Market Analysis
Charlie Ergen to D: Dive Into Media
Market Analysis
Strategy
Dish + DirecTV
Dish + T-Mobile
Recommendation
“
“
I think people are cutting the cord,
I believe it is less risky, long-term, to embrace change.
Dish Strategic Advantage
STRENGTHS
WEAKNESSES
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 experienced large decreases
in revenue growth
Dish Pay-TV Net Additions
(Thousands)
Sources: Dish & DTV 10-K Financials
Market Analysis
Strategy
Dish + DirecTV
Dish + T-Mobile
Recommendation
Strategy: A Time for Change
Market Analysis
Current Efforts
Future Directions
Expand to New Markets
Merge to ensure long-term growth
and create synergies
Strategy
Dish + DirecTV
Dish + T-Mobile
Recommendation
Dish + DirecTV Merger
Horizontal Merger
Market Share
14%
21%
34.1%
Customer Base
14 mn
21 mn
34 mn
$ 13.9 bn
$ 31.8 bn
$ 43.7 bn
Revenue
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
Sources: Valuentum Equity Research
Market Analysis
Strategy
Dish + DirecTV
Dish + T-Mobile
Recommendation
Dish + DirecTV Merger
PROS
Pros
CONS
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
Sources: Valuentum Equity Research
Market Analysis
Strategy
Dish + DirecTV
Dish + T-Mobile
Recommendation
FCC & Dish + DirecTV Merger
34.2
4.8
MVPD Constraints
HHI Increase
4.9
Current MVPD
363
MVPD 4.1
+ Over the Top
183
4.5
12.1
“
“
21.9
The combination … would have us replace a vibrant
competitive market with a regulated monopoly.
Former FCC Chairman Michael Powell in Dissent of the Dish-DirecTV merger of 2002
Market Analysis
Strategy
Dish + DirecTV
Dish + T-Mobile
Recommendation
Introducing Dish Mobile
Switch to Dish Mobile today to enjoy uninterrupted internet everywhere!
Source: TVEverywhere.com
Market Analysis
Strategy
Dish + DirecTV
Dish + T-Mobile
Recommendation
Introducing Dish Mobile
Internet
Phone
TV
INTERNATIONAL
COVERAGE!!
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
NO MORE WIRES!
TV infrastructure and programming
contracts
Market Analysis
“
“ The Bundle Goes Mobile
Strategy
Dish + DirecTV
Dish + T-Mobile
Recommendation
Dish + T-Mobile Merger
Market Share
14%
13% (wireless carrier)
14% + 13%
Customer Base
14 mn
43.4 mn
57.4 mn
$ 13.9 bn
$ 24.1 bn
$ 38 bn
Revenue
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
Sources: Valuentum Equity Research
Market Analysis
Strategy
Dish + DirecTV
Dish + T-Mobile
Recommendation
Dish-Mobile Growth Projections
40
Dish Mobile
TMobile
Dish
30
20
10
5
4
3
2
1
0
0
Total % Growth from 2013
Growth Projections for Dish Mobile
Years After Merger
Historical Data: Dish & T-Mobile Quarterly Reports
Market Analysis
Strategy
Dish + DirecTV
Dish + T-Mobile
Recommendation
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.
Market Analysis
Strategy
Dish + DirecTV
Dish + T-Mobile
Recommendations
References
[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
Appendix
3rd Annual Case Competition
Yale Graduate Consulting Club
April 4, 2014
Pay TV Market Trends
Market Analysis
Strategy
Dish + DirecTV
Dish + T-Mobile
Recommendation
MVPD Market Analysis
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
DirecTV
Dish
Discount rate = Rf + MRP*Beta(Assets)
Rf
Rf
2.72%
MRP
Beta(assets)
2.72%
MRP
6%
Beta(assets)
0.96
Strategy
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 (Assets)
0.96
Beta
Beta(Equity)
Beta(Debt)
Beta (Assets)
Market Analysis
6%
Dish + DirecTV
Dish + T-Mobile
Recommendation
0.93
0.2
0.72
Valuation Dish
Perpetual Growth Rate = 2.20%
Discount Rate
Perpetual Growth Rate = 2.70%
Perpetual Growth Rate =
3.20%
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
11,25
6.2
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
15,67
6.1
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
26,93
2.3
40.9%
43.5%
45.9%
38.7%
41.4%
43.9%
36.2%
39.1%
41.8
%
Company Value
Attribution
% Value in Projection
Period
Market Analysis
Strategy
Dish + DirecTV
Dish + T-Mobile
Recommendation
Valuation DirecTV
Perpetual Growth Rate =
2.20%
Discount Rate
Perpetual Growth Rate = 2.70%
Perpetual Growth Rate = 3.20%
7.5
0%
8.00%
8.50%
7.50%
8.00%
8.50%
7.50%
8.00%
8.550%
FCF over Projection Period
25,
282
.6
24,21
1.1
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
31,92
8.0
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
56,13
9.1
48,463.
1
71,268.
0
59,061.
2
50,452.6
76,865.1
62,534.6
52,757.8
37.
9%
43.1%
47.9%
35.5%
41.0%
46.0%
32.9%
38.7%
44.0%
Company Value Calculation
Company Value Attribution
% Value in Projection Period
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's Stand-Alone EPS
$5.75
$5.98
$6.22
Dish + DirecTV's Combined EPS
$3.83
$3.91
$4.15
-33.3%
-34.6%
-33.3%
Accretion / (Dilution)
Market Analysis
Strategy
Dish + DirecTV
Dish + T-Mobile
Dish
DirecTV
Revenues
30.4%
69.6%
EBITDA
36.8%
63.2%
Dish + DirecTV Shares
530.0
509.0
% Ownership
51.0%
49.0%
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
Components
2.3
2.8
Satellite Sales
Workforce
Marketing
Market Promotion
Marketing
2.3 bn =
2.6 bn =
0.7 bn from reduced marketing expenses
0.4 bn from satellite divestment
0.5 bn from improved contract negotiations
0.7 bn from reduced employees
2.0 bn increased sales (bundling)
0.2 bn divestment of Airwaves
0.4 bn New Technologies?
Market Analysis
Strategy
Dish + DirecTV
Dish + T-Mobile
Recommendation
Dish + T-Mobile Merger
“
“
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
Net Additions (thousands)
T-Mobile Subscriber Growth
Source: Cisco, 2013
Market Analysis
Strategy
Dish + DirecTV
Dish + T-Mobile
Recommendation
Bundling Projection Assumptions
Assumptions
- Quarterly EBIT tracks inflation
- 80% bundling discount
- 5% sign-up crossover/qtr
Market Analysis
Strategy
Dish + DirecTV
Dish + T-Mobile
Recommendation
Valuation Dish + T-Mobile
Pro Forma Earnings Impact
2013
2014E
2015E
2013 Contribution Analysis
Dish's Stand-Alone EPS
$1.89
$1.33
$1.35
Dish Mobile's Combined EPS
$0.70
$0.69
$1.39
-62.9%
-48.3%
2.5%
Accretion / (Dilution)
Market Analysis
Strategy
Dish + DirecTV
Dish + T-Mobile
Dish
T-Mobile
Revenues
36.6%
63.4%
EBITDA
49.0%
51.0%
Dish Mobiles Shares
945.9
802.0
% Ownership
54.1%
45.9%
Recommendation

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