DIRECTV to walk away from DISH merger talks if bondholders aren’t swayed soon

Time appears to be running out for a combination of DISH and DIRECTV. The two companies first announced official plans to merge at the end of September, but plans have been held up by a group of DISH bondholders who refuse to take a “haircut” on their investment in a debt swap required to make the deal work. Now, DIRECTV has publicly informed DISH that if the situation is not resolved in the next week, it will bail on the merger transaction and leave DISH to fend for itself.

Key Details:

• DISH has until Nov. 22 to find some way to appease its bondholders or lose the DIRECTV deal.
• The investors have already rejected one attempt to sweeten the debt swap offer.
• DISH is trying to build a 5G broadband business, but it may be too late if DIRECTV pulls its merger offer.

DIRECTV has informed DISH that if the holdout investors can’t be persuaded to accept a debt swap by Nov. 22, they will decline to go forward with the merger. These bondholders were originally asked to take $1.5 billion less than they were promised when they initially purchased their investments in DBS, the DISH subsidiary that controls its pay-TV operations. However, DBS’s massive amounts of debt need to be reduced if the arrangement is going to work for DIRECTV.

“A successful exchange was a condition for acquiring the Dish video business,” DIRECTV told Reuters in a statement.

The two companies have already made one attempt to try and improve the offer to these bondholders by boosting exchange prices. But that offer was rejected on Monday, and considering the group is also suing DISH co-founder Charlie Ergen for improperly steering funds away from DBS, the likelihood that they can be swayed by a new offer or more cajoling seems small.

“Institutional credit providers face a perilous new era as an emboldened billionaire owner of a publicly traded company seeks to leverage his position in an M&A transaction to coerce debtholders into sacrificing value for the benefit of equity holders, even when there is ample value to ensure a fair outcome for all parties involved,” a letter written by the group’s steering committee said of the debt swap proposal. “We will not allow that to happen here.”

If the merger fails, DISH may be left to fight for survival on its own. The company has been making herculean efforts to build a 5G internet business, which has required significant investments. The merger would have allowed DISH to continue focusing on building that business, while DIRECTV would have taken over operations of the DISH satellite service and the live TV streamer Sling TV.

If Ergen can pull a miracle out of his hat and appease the recalcitrant bondholders before Nov. 22, the merger deal will go ahead as planned. Barring that miracle, however, it appears the combination of DIRECTV and DISH is headed for an ignominious end.