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DISH's $9 Billion Coffer and the Company's Future

By Michael Lewis - Apr 5, 2013 at 9:00PM

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With money to spend on its wireless network, and a possible mega-merger, where is the satellite-tv provider headed?

DISH Network (DISH 4.93%) has lots and lots of cash -- more than $7 billion following this week's debt issuance. As opposed to other cash hoarders, there's no secret as to what the company wants to spend it on. DISH is knee-deep in the race for spectrum and wireless buildout to launch its much-anticipated 4G network. The question is, where will the company make its purchase? As Sprint (S) and Clearwire (NASDAQ: CLWR) continue to cozy up, the satellite-television provider will likely have to look elsewhere for its spectrum bundle. Where will the billions go?

To buy, or be bought?
DISH Network, despite the occasional stumbles and mediocre subscriber gains, is a thriving business, with strong cash flows and sound management. Its biggest detractor is more than $11 billion in long-term debt.

The company does not need a buyer, but it may happen anyway. DIRECTV (DTV.DL) has been killing it in Latin America, adding millions of subscribers in a relatively short period of time. Even in the U.S., where pay-tv penetration approaches total saturation, the company has increased its average revenue per user, and found ways to boost its North American cash flows. Meanwhile, DISH's numbers have suffered, similar to the numbers of cable companies.

This presents an interesting opportunity for both companies. DISH could use the Latin American subscriber growth, and DIRECTV could gain immediate exposure to the wireless network effort. It would be a pretty textbook case of a symbiotic merger -- more like an acquisition, since DTV is the bigger company.

In the company's last conference call, DISH CEO Charlie Ergen said he would have to consider the buyout possibility, because it just makes sense. While not the most enthusiastic language, he's absolutely right.

But, meanwhile, what is to be done with the billions the company just raised in a debt offering, not to mention the quarterly cash flows that continue to add hundreds of millions?

DISH is starving for spectrum. At the end of last year, the company made an offer for Clearwire, but it never got too far, as Sprint, the original suitor, seems to have warmed up the former's board to the idea. There must be some potential elsewhere, though, as DISH just this week issued its latest debt of $1 billion, in addition to $4 billion in senior notes last year.

Besides increasing the company's $3.30 per share offer for Clearwire, which could induce a shareholder riot compared to Sprint's $2.97 offer, the company could back Deutsche Telekom's proposed takeover of MetroPCS. This would accomplish nearly the same thing, and a JV with the German telecom juggernaut could add a sense of security for investors and analysts.

The next few months will be very interesting for DISH shareholders, as it may show the future direction (and viability) of the company. If any of the above materialize, it would be a win for investors.

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