Why EchoStar stock plunged 18% today

So it seems the rumors were true.

Two weeks after Bloomberg broke the story about the on-again, off-again merger between the two EchoStar (SATS -13.16%) and DirecTV may be back up and running, EchoStar this morning announced a “series of transformative transactions to deleverage its balance sheet and improve its debt maturity profile.”

Investors are unimpressed. EchoStar shares fell 18.5% as of 10:15 a.m. ET on the news.

How the Dish and DirecTV merger will work

As EchoStar describes the deal, it primarily involves the company's decision to sell its Dish and Sling TV businesses to DirecTV. Instead of pay However, to acquire these companies, DirecTV will only assume $9.8 billion of their debt. EchoStar investors can't be happy if they don't get paid.

Additionally, EchoStar noted that private equity group TPG and other investors will invest $2.5 billion to “fully refinance” EchoStar’s remaining debt. EchoStar will take on $5.1 billion in new debt in return for much-needed cash. The company plans to use this money to expand its “nationwide 5G Open RAN network Boost Mobile” and thus become even more of a pure-play mobile company.

Finally, to sweeten the deal for certain investors, EchoStar will conduct a private investment-in-public equity (PIPE) transaction, privately selling 14.3 million shares to raise an additional $400 million.

What does this mean for EchoStar shareholders?

Long story short: EchoStar is getting out of the satellite TV business while DirecTV is moving deeper. While the intricacies of EchoStar's “series of transformative transactions” are confusing, the result appears to be this:

EchoStar is currently unprofitable and has $25.3 billion in debt while the company only has $520 million in cash. By selling Dish and Sling to DirecTV, the company will reduce its debt load, lower its interest payments and move closer to profitability. The company is also rolling over its debt, pushing it a few years into the future while simultaneously taking over more Debt and sales more Stocks to raise cash.

Ultimately, the company will look to use this new money to establish its new identity as a pure-play wireless carrier.