EchoStar & AT&T First Take

What's new: AT&T and EchoStar have announced that AT&T is buying all of EchoStar's 3.45GHz and 600MHz spectrum for $22.7BN. Additionally, EchoStar is transitioning to a "hybrid MNO" arrangement with AT&T, which seems to mean that EchoStar's network equipment will be decommissioned.

The $22.7BN purchase price is is $9BN more than EchoStar paid for the bands, and $5BN more the appraised value used in securitizing the bands. It is $1.5BN shy of our valuation, but is nevertheless a great mark on value.

EchoStar will use the proceeds to repay the $3.5BN Dish Network note backed by the 600MHz and the $7.6BN of intercompany notes attached to the 3.45GHz. This should deliver $3BN of cash to DBS, which will allow DBS to pay off all $4.8BN of debt maturing next year (after including cash and hand and cash generated in the interim). It will also deliver almost $5BN of proceeds to EchoStar (which became the recipient of most of the intercompany loan in an asset transaction last year).

Given we suspect some of this will be used to fund EchoStar's S-Band ambitions, after paying taxes, transaction costs, and $11BN of debt ($8BN of which is intercompany) we currently estimate EchoStar will have $8BN of excess proceeds from this transaction that we would earmark for shareholders. This is worth $28 per SATS share.

Because EchoStar is transitioning to a "hybrid MNO," we suspect all of its terrestrial spectrum assets will now be sold. As an initial take we will exclude all remaining bands but AWS-3 and AWS-4; even with a haircut to value, the company easily has $30BN of additional wireless spectrum to monetize. After taxes and paying off all debt not owned by DBS or Hughes, the company would have $7BN of excess cash for shareholders. This is worth $25 per SATS share. Between the $28 for today's sale and $25 remaining (in the worst case), that is $53 of secured equity value for SATS in the worst case.

We will have much more to say after the AT&T call at 8:30 (here). Blair will have a policy note out soon.