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3 rd Annual Case Competition Yale Graduate Consulting Club April 4, 2014 Dish Mobile A New Horizon for Satellite Broadcasting.

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Presentation on theme: "3 rd Annual Case Competition Yale Graduate Consulting Club April 4, 2014 Dish Mobile A New Horizon for Satellite Broadcasting."— Presentation transcript:

1 3 rd Annual Case Competition Yale Graduate Consulting Club April 4, 2014 Dish Mobile A New Horizon for Satellite Broadcasting

2 Though lucrative in the short term, regulatory issues likely to prohibit horizontal merger with DirecTV. Market AnalysisStrategyDish + DirecTVDish + T-MobileRecommendation Strategic merger for long- term growth through wireless bundling and streaming of video content.

3 Sources: FCC, Moffett Nathanson, DISH & NFLX 10-K Market Analysis StrategyDish + DirecTVDish + T-MobileRecommendation MVPD Market Breakdown 99.3 mn DBS has no growth for the last 3 years Over-The-Top Streaming is Growing Rapidly 20.1 14.1 21.9 12.1 4.5 4.1 4.9 4.8

4 Market Analysis StrategyDish + DirecTVDish + T-MobileRecommendation The pay-TV industry has reported its worst 12-month stretch ever. Craig Moffett and Michael Nathanson, Media Stock Analysts

5 Market Analysis StrategyDish + DirecTVDish + T-MobileRecommendation Charlie Ergen to D: Dive Into Media I think people are cutting the cord, I believe it is less risky, long-term, to embrace change.

6 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 Strategic Advantage Market AnalysisStrategyDish + DirecTVDish + T-MobileRecommendation Sources: Dish & DTV 10-K Financials Dish experienced large decreases in revenue growth Dish Pay-TV Net Additions (Thousands) STRENGTHSWEAKNESSES

7 Strategy: A Time for Change Market AnalysisStrategyDish + DirecTVDish + T-MobileRecommendation Current Efforts Expand to New Markets Future Directions Merge to ensure long-term growth and create synergies

8 Valuation We valuate that DirecTV is worth $59.06 bn @ $80.55 /share. Other estimates range from $57 bn - $80 bn We propose a stock-stock exchange : 1 DirecTV = 1.17 Dish-DirecTV Market AnalysisStrategyDish + DirecTVDish + T-MobileRecommendation Dish + DirecTV Merger Sources: Valuentum Equity Research Market Share14%21%34.1% Customer Base14 mn21 mn34 mn Revenue$ 13.9 bn$ 31.8 bn$ 43.7 bn Horizontal Merger

9 Market AnalysisStrategyDish + DirecTVDish + T-MobileRecommendation Dish + DirecTV Merger Sources: Valuentum Equity Research ProsCons 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 expansionFCC regulatory hurdles Increased negotiating power PROSCONS

10 Former FCC Chairman Michael Powell in Dissent of the Dish-DirecTV merger of 2002 The combination … would have us replace a vibrant competitive market with a regulated monopoly. Market AnalysisStrategyDish + DirecTVDish + T-MobileRecommendation FCC & Dish + DirecTV Merger MVPD ConstraintsHHI Increase Current MVPD363 MVPD + Over the Top183 34.2 21.9 12.1 4.5 4.1 4.9 4.8

11 Market AnalysisStrategyDish + DirecTVDish + T-MobileRecommendation Introducing Dish Mobile Source: TVEverywhere.com Switch to Dish Mobile today to enjoy uninterrupted internet everywhere!

12 Market AnalysisStrategyDish + DirecTVDish + T-MobileRecommendation Introducing Dish Mobile The Bundle Goes Mobile Internet TV Phone DishT-Mobile Satellites in orbitCell towers and mobile infrastructure $6 bn spectrum in H block, 700 MHz band and others Mobile phone spectrum for voice, data TV infrastructure and programming contracts INTERNATIONAL COVERAGE!! NO MORE WIRES!

13 Valuation We valuate that T-Mobile is worth $29.00 bn @ 38.54 /share. Other estimates range from $26 bn - $36 bn We propose a stock-stock exchange : 2.09 T-Mobile = 1 Dish Mobile Market AnalysisStrategyDish + DirecTVDish + T-MobileRecommendation Dish + T-Mobile Merger Sources: Valuentum Equity Research Market Share14%13% (wireless carrier)14% + 13% Customer Base14 mn43.4 mn57.4 mn Revenue$ 13.9 bn$ 24.1 bn$ 38 bn

14 Market AnalysisStrategyDish + DirecTVDish + T-MobileRecommendation Dish-Mobile Growth Projections Historical Data: Dish & T-Mobile Quarterly Reports

15 Market AnalysisStrategyDish + DirecTVDish + T-MobileRecommendations 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.

16 [1] Dish Annual Report 2013 [2] DirecTV Annual Report 2013 [3] FCC 15 th 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 AnalysisStrategyDish + DirecTVDish + T-MobileRecommendations References

17 3 rd Annual Case Competition Yale Graduate Consulting Club April 4, 2014 Appendix

18 Market AnalysisStrategyDish + DirecTVDish + T-MobileRecommendation Pay TV Market Trends

19 MVPD Market Analysis Market AnalysisStrategyDish + DirecTVDish + T-MobileRecommendation Source: National Cable and Telecommunications Association

20 Market AnalysisStrategyDish + DirecTVDish + T-MobileRecommendation Cable Price to CPI You now pay 48% more for Expanded Basic than you did in 1986 *

21 Market AnalysisStrategyDish + DirecTVDish + T-MobileRecommendation Broadband Deployment

22 Market AnalysisStrategyDish + DirecTVDish + T MobileRecommendation Potential Global Markets Source: Rethink Technology Research

23 Market AnalysisStrategyDish + DirecTVDish + T MobileRecommendation Mexico & Latin America Satellite TV Figures

24 Market AnalysisStrategyDish + DirecTVDish + T-MobileRecommendation WACC Dish DirecTV Discount rate = Rf + MRP*Beta(Assets) Rf 2.72% Rf 2.72% MRP 6% MRP 6% Beta(assets) 0.96 Beta(assets) 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 BetaBeta(Equity) 0.93 Beta (Assets) 0.96 Beta(Debt) 0.2 Beta (Assets) 0.72

25 Market AnalysisStrategyDish + DirecTVDish + T-MobileRecommendation Valuation Dish Perpetual Growth Rate = 2.20%Perpetual Growth Rate = 2.70% Perpetual Growth Rate = 3.20% Discount Rate 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 11,256.211,745.011,496.4 11,256. 2 11,745. 0 11,496.4 11,25 6.2 Terminus 16,945.8 14,930. 7 13,241.218,635.216,297.2 14,362. 0 20,676. 6 17,921.4 15,67 6.1 Company Value 28,690.8 26,427. 1 24,497.4 30,380.227,793.6 25,618. 2 32,421. 6 29,417.9 26,93 2.3 Company Value Attribution % Value in Projection Period 40.9%43.5%45.9%38.7%41.4%43.9%36.2%39.1%41.8 %

26 Market AnalysisStrategyDish + DirecTVDish + T-MobileRecommendation Valuation DirecTV Perpetual Growth Rate = 2.20% Perpetual Growth Rate = 2.70%Perpetual Growth Rate = 3.20% Discount Rate 7.5 0% 8.00%8.50%7.50%8.00%8.50%7.50%8.00%8.550% Company Value Calculation FCF over Projection Period 25, 282.6 24,21 1.1 23,210. 3 25,282. 6 24,211. 1 23,210.325,282.624,211.123,210.3 Terminus 41, 444.4 31,92 8.0 25,252. 8 45,985. 4 34,850. 1 27,242.351,582.538,323.529,547.6 Company Value 66, 727.0 56,13 9.1 48,463. 1 71,268. 0 59,061. 2 50,452.6 76,865.162,534.652,757.8 Company Value Attribution % Value in Projection Period 37. 9% 43.1%47.9%35.5%41.0%46.0%32.9%38.7%44.0%

27 Market AnalysisStrategyDish + DirecTVDish + T MobileRecommendation HHI Calculations MVPD MarketPre-mergerPost-mergerNew HHI Current Market17551940185 Comcast/TWC Merger Market24632648185 With StreamingPre-mergerPost-mergerNew HHI Current Market15731936363 Comcast/TWC Merger Market19122276364 >100 = highly competitive; >1500 = unconcentrated; >2500 = moderately concentrated; <2500 = highly concentrated Increases over 100 provoke scrutiny by the DoJ

28 Market AnalysisStrategyDish + DirecTVDish + T-MobileRecommendation Valuation Dish + DirecTV Pro Forma Earnings Impact 20132014E2015E 2013 Contribution Analysis DishDirecTV Dish's Stand-Alone EPS$5.75$5.98$6.22Revenues30.4%69.6% Dish + DirecTV's Combined EPS$3.83$3.91$4.15EBITDA36.8%63.2% Accretion / (Dilution)-33.3%-34.6%-33.3%Dish + DirecTV Shares530.0509.0 % Ownership51.0%49.0%

29 Market AnalysisStrategyDish + DirecTVDish + T-MobileRecommendation Comparison of Wireless Carriers 33% Market Share30% Market Share17% Market Share10% Market Share $33.2B$31.1B Revenue$7.2B Revenue$5.3B Revenue $90/Month$110/Month$80/Month$70/Month Source: IBISWorld; WSJ

30 Market AnalysisStrategyDish + DirecTVDish + T-MobileRecommendation Operational Efficiencies 2.32.8 ComponentsSatellite Sales Workforce Marketing Market Promotion Marketing 2.3 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 2.6 bn = 2.0 bn increased sales (bundling) 0.2 bn divestment of Airwaves 0.4 bn New Technologies?

31 Dish + T-Mobile Merger Market AnalysisStrategyDish + DirecTVDish + T-MobileRecommendation Source: Cisco, 2013 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 T-Mobile Subscriber Growth Net Additions (thousands)

32 Assumptions - Quarterly EBIT tracks inflation - 80% bundling discount - 5% sign-up crossover/qtr Market AnalysisStrategyDish + DirecTVDish + T-MobileRecommendation Bundling Projection Assumptions

33 Market AnalysisStrategyDish + DirecTVDish + T-MobileRecommendation Valuation Dish + T-Mobile Pro Forma Earnings Impact 20132014E2015E 2013 Contribution Analysis DishT-Mobile Dish's Stand-Alone EPS$1.89$1.33$1.35Revenues36.6%63.4% Dish Mobile's Combined EPS$0.70$0.69$1.39EBITDA49.0%51.0% Accretion / (Dilution)-62.9%-48.3%2.5%Dish Mobiles Shares945.9802.0 % Ownership54.1%45.9%


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