Download - MORNINGSIDE GROUP
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1MORNINGSIDE GROUP
MORNINGSIDE GROUP
2014 YALE CASE COMPETITION
INIGO BERGARECHE
LUKAS DIDON
YONI PASTERNAK
SOPHIA PORRINO
XIAOJIE ZHING
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DISH should offer $39.2B in stock to consolidate with DirecTV
Satellite TV Multi-Play BundleInternet TV
Recommendation
● Gain operational and organizational efficiencies
● Gain 35M customers
● Leverage with customers
● Access content rights
● Increase advertising revenue
● Capital for wireless acquisition
● Capital for internet
● Leverage with content providers
● Respond to seismic industry changes● Access more customers and international
market
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Industry Overview
Creation
Value Chain
Aggregation
Distribution
Consumption
Content creatorsRight holders
Description
Right dealersProgram packagesContent agregators
Network operatorsAccess providers
Device usersDevice manufacturers
Fox, BBC, Disney, Sony, Universal
Key Players
ESPN, ABC, DiscoveryHBO, FOX, Veoh, Google
Netflix, Hulu
TV: Comcast, DirecTV, Dish, TWCInternet: Comcast, AT&T, VerizonPhone: Verizon, AT&T, Sprint, Century Link
Apple, Samsung, LG, HTC, Cisco
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● 35M new customers● 96% market share of 2.3% US
revenue growth● Fast-growing (24%) Latin
American market● Leverage with customers and
content providers
Satellite TV Trends
IBIS world
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Enter OTT market:● Very fast growing (50% YoY)● $20B projected 2015 US
market● 20% all video consumption
by 2016
Internet TV Trends
IBIS world
• Increase advertising revenue (DirecTV- FreeWheel)
• Utilize access to content providers• DISH: Blockbuster & Disney • DirecTV: NFL and other sports
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● Trend towards bundling (2% predicted growth rate)● Utilize DISH’s spectrum (worth $12-25B) to enter wireless market
(acquire T-Mobile)● Internet TV traffic on wireless networks is steadily increasing
Multi-Play Bundling Trends
Digital TV Research Ltd.
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● Offer a bid of $39.2 B in stock to DirecTV● Merge to form a new venture DISHDirecTV● Max bid $47.3B
Deal Structure
Company Stock Price
($/share)
Share Outstanding
(M)
Market Cap.(M)
Ownership of the new
venture
Stock-to- Stock
exchange ratio
DISH 64.07 458.3 29,363 42.5% 0.90
DirecTV 77.98 510 39,770 57.5% 1.09
DISHDirecTV 71.40 968.3 69,133 - -
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● Reduce competition● Increase leverage over content providers and customers● Improve operating efficiency (estimated 1.7B annual cost saving) ● Increase financial flexibility
Synergies
DirecTV Dish Merger w/o
synergy
Merger w
synergy
SG&AE saving
SG&AE 6,975 2,304 9,279 7,565 1,714
Revenue 31754 13905 45659 45659 -
Overhead % 21.97 16.57 20.32 16.57 -
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Organizational Structure
DISH DirecTV
CEOCFO &
Deputy CEO
2 Board Members 2 Board Members
HR Director
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10MORNINGSIDE GROUP
APPENDIX
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11MORNINGSIDE GROUP
Regulatory landscapeAnti-trust hurdles: merger could be denied• 1 M more subscribers than Comcast & TWC (34 M vs. 33 M)• Subscribers occupy overlapping geographic regions• Direct competitors (however increasing competition from Internet TV)
Undermine Comcast & TWC merger• Regulators might become concerned about two giants dominating the market and deny
both mergers
Good Timing & Regulatory Feasibility needs to be seeked• Different regulatory environment now than in 2002 when bid failed
• Rise of cord-cutting makes a monopoly less of a risk now• In 2008 two competing satellite companies received permission to merge (Sirius and
XM satellite)• Dish-DirectTV merger would counterbalance Comcast & TWC giant
• Dish and DirecTV (unlike Comcast & TWC) wouldn’t have a chokehold on Internet TV• Satellite TV can be bundled with Internet service, but it’s either through partners or,• in Dish’s case, through satellite-based Internet, which is not an adequate option
• Historically, second-term presidencies avoid antitrust cases
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12MORNINGSIDE GROUP
Max Bid
Comcast and TWC deal
Pre-merger Stock Price
Share outstanding Market Cap Bid premium
TWC 137 277.45 38010.65 45200 0.19
DirecTV 77.98 510 39,770 47292 0.19
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REFERENCES1. Accenture’s Bringing TV to Life Series: Issues I-III; http://www.accenture.com/SiteCollectionDocuments/PDF/
Accenture_Communications_Media-Entertainment_OTTV_Future_of_TV.pdf; 2. IBISWorld’s Industry Research: Telecommunications, Satellite TV, Internet Industries3. http://ir.netflix.com/long-term-view.cfm4. http://www.nytimes.com/2010/12/06/business/media/06rabbitears.html?pagewanted=all&_r=05. http://www.forbes.com/sites/dorothypomerantz/2014/03/31/why-a-directv-dish-network-merger-might-be-
different-this-time-around/6. http://www.forbes.com/sites/realspin/2014/02/27/competition-will-not-survive-the-comcast-time-warner-
merger/7. http://www.businessweek.com/articles/2014-03-27/will-directv-and-dish-catch-cables-merger-fever8. http://www.businessweek.com/news/2014-03-26/ergen-directv-overture-puts-dish-in-play-as-at-and-t-waits-
real-m-and-a9. http://news.investors.com/technology/033114-695292-dish-stock-valuation-spectrum-monetization-network-
build-out-scenarios.htm#ixzz2xgbOkryr 10. http://www.theregister.co.uk/2014/03/31/dish_directv_merger/11. http://variety.com/2014/digital/news/dishs-disney-deal-gives-the-satcaster-rights-for-a-virtual-mso-foray-but-
making-that-a-reality-wont-be-easty-1201129635/12. http://variety.com/2014/biz/news/new-data-confirms-pay-tvs-slow-decline-will-cord-cutting-trickle-become-
become-gusher-1201139302/13. http://247wallst.com/media/2013/10/10/would-a-directv-dish-merger-still-make-a-new-pay-tv-media-
monopoly/#ixzz2xhMcmPns 14. http://www.fool.com/investing/general/2014/03/27/will-a-directv-dish-network-merger-happen.aspx15. http://beta.fool.com/valuentum/2013/03/20/-185/27508/16. http://www.digitaltvnews.net/?p=21612