Sling Media, EchoStar & Ma Bell: The Buyout Game

[qi:045] The $380 million purchase of Sling Media by EchoStar (DISH) may turn out be act one of a drama that climaxes with AT&T (T) buying EchoStar’s satellite broadcast business. The company has asked its board of directors to split the company into two divisions — both publicly traded.
One division would consist of the consumer pay-TV business, while the second division would house the technology business, including set-top boxes, fixed satellite services, and Sling Media, and ostensibly investments such as EchoStar’s $10 million stake in Archos. Charlie Ergen would be chairman and CEO of both of the new companies. Suddenly, Sling Media’s announcement last week that it was helping DirecTV (DTV) distribute football videos online makes sense. Now as a separate company they can do the same for anyone, including DirecTV.
UBS analyst John Hodulik in a note to clients said he believes this split “improves the chances that AT&T will eventually acquire EchoStar’s video business.” EchoStar has been linked in the past with AT&T and is the video provider for AT&T’s Homezone service. The Homezone sales have been on an upswing, even as AT&T pushes sales of its IPTV-based U-Verse service.
In its most recent quarter, AT&T added 200,000 new video connections, bringing the total to 1.9 million. At the end of the second quarter, AT&T had 51,000 U-verse video subscribers, so I am guessing the rest came from satellite TV. This is one of the reasons why Wall Street is convinced that AT&T and EchoStar will come together.
Hodulik points out that next year, when DirecTV’s deal with BellSouth ends, EchoStar is going to get a nice surprise.

The acquisition of EchoStar’s pay-TV business would improve its content purchasing power by adding DISH’s 14 million subscribers, enable it to advertise video across its entire footprint, and allow it to more fully participate in the economics associated with sales of the satellite television service into its own residential
customer base.

He’s right, and given that EchoStar is seeking to find out the tax implications of its split, there is a reasonable chance that the company is preparing itself to be sold.