2014 YALE CASE COMPETITION
MORNINGSIDE GROUP
INIGO BERGARECHE
LUKAS DIDON
YONI PASTERNAK
SOPHIA PORRINO
XIAOJIE ZHING
MORNINGSIDE GROUP
1
Recommendation
DISH should offer $39.2B in stock to consolidate with DirecTV
Internet TV
Satellite TV
● Gain operational
and organizational
efficiencies
● Gain 35M
customers
● Leverage with
customers
Multi-Play Bundle
● Respond to seismic industry changes
● Access more customers and international
market
● Access content
rights
● Capital for wireless
acquisition
● Increase
advertising
revenue
● Capital for internet
● Leverage with content providers
Industry Overview
Value Chain
Description
Key Players
Creation
Content creators
Right holders
Fox, BBC, Disney, Sony, Universal
Aggregation
Right dealers
Program packages
Content agregators
ESPN, ABC, Discovery
HBO, FOX, Veoh, Google
Netflix, Hulu
Distribution
Network operators
Access providers
TV:
Comcast, DirecTV, Dish, TWC
Internet:
Comcast, AT&T, Verizon
Phone: Verizon, AT&T, Sprint, Century Link
Consumption
Device users
Device manufacturers
Apple, Samsung, LG, HTC, Cisco
Satellite TV Trends
● 35M new customers
● 96% market share of 2.3% US
revenue growth
● Fast-growing (24%) Latin
American market
● Leverage with customers and
content providers
IBIS world
Internet TV Trends
Enter OTT market:
● Very fast growing (50% YoY)
● $20B projected 2015 US
market
● 20% all video consumption
by 2016
IBIS world
• Increase advertising revenue
(DirecTV- FreeWheel)
• Utilize access to content providers
• DISH: Blockbuster & Disney
• DirecTV: NFL and other sports
Multi-Play Bundling Trends
● 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
Digital TV Research Ltd.
Deal Structure
● Offer a bid of $39.2 B in stock to DirecTV
● Merge to form a new venture DISHDirecTV
● Max bid $47.3B
Company
Stock
Price
($/share)
Share
Outstanding
(M)
Market
Cap.(M)
Ownership
of the new
venture
Stock-toStock
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
-
-
Synergies
●
●
●
●
Reduce competition
Increase leverage over content providers and customers
Improve operating efficiency (estimated 1.7B annual cost saving)
Increase financial flexibility
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
-
Organizational Structure
DISH
DirecTV
CEO
CFO &
Deputy CEO
2 Board Members
2 Board Members
HR Director
APPENDIX
MORNINGSIDE GROUP
10
Regulatory landscape
Anti-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
MORNINGSIDE GROUP
11
Max Bid
Comcast and TWC deal
Pre-merger
Share
Stock Price outstanding Market Cap
Bid
premium
TWC
137
277.45
38010.65
45200
0.19
DirecTV
77.98
510
39,770
47292
0.19
MORNINGSIDE GROUP
12
REFERENCES
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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;
IBISWorld’s Industry Research: Telecommunications, Satellite TV, Internet Industries
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http://www.digitaltvnews.net/?p=21612