Dish Completes Rights Offering: How Big Is Its Funding Gap?

Last month, Dish Network (DISH) set out to raise more cash through the sale of new shares in a rights offering. Dish completed the rights offering this month and said it raised about $1.0 billion in cash. Dish chairman Charlie Ergen gave the rights offering a huge boost. Ergen and his family together invested $600 million in the Dish rights offering, increasing his stake in the company.

Dish’s cash reserve should rise to about $2.6 billion after the rights offering

Dish exited the third quarter with $1.6 billion in cash reserves. Dish needs to raise $1.0 billion through the rights offering, bringing its cash reserve to about $2.6 billion.

While that shows a huge bump in Dish’s cash reserve, that is far from being adequate to cover the company’s immediate cash needs. Dish requires about $15 billion to finance its wireless venture. Let’s look at a breakout of Dish’s spending needs.

Purchase of wireless assets from T-Mobile and Sprint

In a bid to jumpstart its wireless business, Dish decided to join the T-Mobile-Sprint merger deal as a third party. So, Dish plans to purchase a collection of wireless assets that T-Mobile (TMUS) and Sprint (S) agreed to drop to gain federal regulatory clearance for their merger. Plus, Dish would require $5.0 billion to purchase those assets.

Dish wants to build a wireless network

Dish has accumulated spectrum that it hasn’t used, and regulators aren’t happy with that state of affairs. The FCC has given Dish until 2022 to start using the spectrum in its possession.

If Dish fails to meet its network buildout agreement with the FCC, then the regulator would fine it about $2.2 billion and could even take away its spectrum. Dish has estimated it will require about $10 billion to build a nationwide modern wireless network.

Dish has a $12.4 billion funding gap for its wireless business

If Dish has $2.6 billion following the completion of its rights offering, then the company’s wireless venture still has a $12.4 billion funding gap.

While testifying at the T-Mobile-Sprint merger trial, Dish chairman Ergen suggested that funding wouldn’t be a major problem. Ergen told the court that three banks have lined up to give Dish a $10 billion loan to build its wireless network. Additionally, Ergen said Dish could obtain a $1.0 billion loan from JPMorgan Chase (JPM) with the help of SoftBank (SFTBY).

Dish’s desire to enter the wireless market is largely a response to a shrinking pay-TV market. The company’s finances have been deteriorating recently as it continues to lose satellite television subscribers.