FBR challenges Dish M&A speculation as build-out seen signaling no deal

After DISH Network's (DISH) asset swap announcement with EchoStar (SATS) late last month spurred M&A speculation, research firm FBR argued Thursday that the deal - and the company's network build-out - actually signal a lack of takeover suitors for the satellite TV giant as the major carriers cool their appetite for wireless spectrum. FBR SAYS BUILD-OUT SIGNALS WEAK M&A POTENTIAL: FBR analyst David Dixon argues in a post-earnings note Thursday that DISH's network build-out "suggests lack of near-term M&A opportunities," adding that its recent asset-swap deal with EchoStar - which immediately spurred takeover speculation on what Macquarie analysts identified as a simplified corporate structure and clearer valuation for DISH - was in fact driven by a lack of suitors. To bullish DISH investors, Verizon (VZ) is the most logical buyer, but Dixon sees Big Red instead leaning toward a cable or content deal. Additionally, the oft-speculated merger of T-Mobile (TMUS) and Sprint (S) - which the analyst believes would clear regulators given the current political climate and T-Mobile's reduced spectrum capacity since their 2014 deal attempt - would remove a potential buyer for DISH spectrum. Even if T-Mobile-Sprint never materializes, Dixon still views a T-Mobile-DISH combination as "unlikely." Turning to DISH's build-out itself, the analyst warns that the window of opportunity to monetize spectrum is closing, with carriers responding to declining wireless revenues by embracing a new unlicensed/shared model at a time when investments in spectrum and network are turning "negative." Dixon says investors value DISH's spectrum "too highly," adding that while AT&T (T) and Verizon "appear to be prime candidates" for buying more capacity, they would face intense regulatory risk and are undergoing the aforementioned strategic shift in spectrum utilization. Noting that both Sprint and T-Mobile have more than enough spectrum for the foreseeable future, Dixon believes DISH should move to acquire T-Mobile ahead of a Comcast (CMCSA) wireless launch, but he sees "more strategic alliance opportunities" between T-Mobile and Comcast or Google (GOOG). The analyst cut his DISH price target to $44 from $48 while maintaining an Underperform rating on the shares. RECENT MERGER SPECULATION: Following DISH and EchoStar's January 31 asset swap announcement, Macquarie analyst Amy Yong argued that the move "facilitates M&A" given a simplified corporate structure and clarified valuation for DISH. Calling DISH "one of many" takeover options for Verizon, Yong noted that the company's Sling TV service "could be Verizon's 'DirecTV Now,' or a way to gain additional scale in mobile video." Separately, Wells Fargo analyst Marci Ryvicker weighed in on the potential rationale behind the EchoStar deal, saying "our gut tells us [chairman and CEO Charlie Ergen] is cleaning these two companies up for a reason... Perhaps this could be related to something transformative post the broadcast incentive auction." FCC CHAIR WEIGHS IN ON MERGER POTENTIAL: Speaking in a February 22 CNBC interview, newly-appointed FCC chairman Ajit Pai was asked for his views on potential consolidation in the telecom industry, replying that "the marketplace right now is extremely competitive [and] very healthy." PRICE ACTION: Shares of DISH Network are fractionally lower to about $62 per share in afternoon trading. Over the last six months, the stock has advanced nearly 25%.