Dish/AT&T Headed For Divorce?

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Dish Network said in a filing with the Securities and Exchange Commission late Tuesday that AT&T has notified the company it will exercise put rights for its portion of a $500 million note convertible into Dish shares, a move that Sanford Bernstein cable and satellite analyst Craig Moffett said is further evidence that the two are getting growing apart.

The notes were convertible into Dish Network shares at $60.25 each, far above Dish’s trading price of $33.02 on June 17. In a research note, Moffett wrote that the decision to exercise the put rights and require Dish to repurchase AT&T’s interest should put the final nail in the coffin merger speculation regarding the two companies.

When Dish and AT&T (then SBC Communications) entered into the agreement in 2003, it was the first in a series of distribution deals between the telcos and satellite operators to offer what has since been called the “synthetic triple play,” according to Moffett.

While merger talk has surfaced intermittently over the past few years,  Moffett added that this move should throw more cold water on any lingering speculation that AT&T is contemplating acquiring Dish.

“Publicly exercising a put option and unwinding a financial interest is more akin to beginning divorce proceedings than it is to the start of a mating dance,” Moffett wrote.

The analyst added that the big winner is DirecTV, which appears to be on equal footing with Dish is winning back the AT&T distribution agreement with BellSouth this year, and perhaps with it the larger legacy SBC markets as well. DirecTV lost its distribution deal with BellSouth – purchased by AT&T last year – in the first quarter when AT&T went exclusively with Dish. But the telco said at the time that its hands were tied – its exclusive deal with Dish didn’t expire until the end of 2008 – and that it would revisit the contract in October.

Investors apparently agree with Moffett, sending Dish’s stock down more than 5% ($1.76 per share) to $31.31 each in early trading Wednesday.

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