In a Tuesday statement, Dish said it will give up its 80% economic interest in EchoStar's consumer satellite broadband services unit, Hughes Retail Group, held in the form of tracking stock. In exchange, Dish will receive the satellite and digital broadcast service provider's 10% stake in Sling TV and wireless spectrum licenses covering four markets.
EchoStar also will transfer its EchoStar Technologies hardware and software development group to Dish, in addition to its national and regional uplink business, managed fiber backhaul network serving all U.S.-designated market areas and its over-the-top development group.
Dish said it anticipated the tax-free transaction would close in the fiscal first quarter.
Representatives from the Englewood, Colo., company and EchoStar were not immediately available for comment.
The transaction will give Dish end-to-end control over its Sling TV streaming service, which has grown to become a major competitor in the crowded arena of over-the-top content providers that includes AT&T's (T) - Get Report DirecTV Now and Sony's (SNE) - Get Report PlayStation Vue, as well as a soon-to-launch live TV offering from Hulu and Alphabet's (GOOGL) - Get Report upcoming Google Unplugged.
The asset swap sent Dish shares higher Wednesday, with shares up $1.84, or 3.1%, to $61.01 in afternoon trading. Analysts said the deal simplifies Dish's management structure, making room for potential M&A opportunities.
EchoStar shares benefited even more, soaring $3.94, or 7.7%, to $54.87.
According to Variety, Wells Fargo analyst Marci Ryvicker said she believes Ergen is "cleaning these two companies up for a reason," with "something transformative" potentially on the way after the Federal Communications Commission's spectrum auction concludes. Ryvicker was not available for comment Wednesday.
TheStreet previously reported M&A talks between participants in the auction could come as early as March if the auction winds down; rules meant to prevent collusion between bidders in government spectrum auctions bar strategic discussions between participants.
In a presentation to investors, EchoStar, for its part, noted the deal will give it a clearer business focus and simplified ownership structure to pursue "strategic opportunities."
The Englewood company spun off from Dish in 2008, retaining ownership of the satellite and set-top box development segments. In 2011, EchoStar purchased broadband satellite technology company Hughes Communications for $1.35 billion.
Macquarie Capital analyst Andrew DeGasperi said the asset swap is a "very smart move" for EchoStar because it adds value to its business, clears up its ownership structure and potentially could pave the way for near-term strategic acquisitions. EchoStar also has $3 billion in cash reserves that could be fodder for future M&A, he noted.
"EchoStar management has been talking about a strategic acquisition," he said. "It's unclear whether they're looking, but they seemed to imply they're not close to any particular deal."
EchoStar may be looking at purchasing a Canadian or European satellite entity as it looks to develop an S-band mobile communications satellite over Europe. EchoStar purchased Dublin mobile satellite services operator Solaris Mobile in 2014 and last May said Facebook (FB) - Get Report and Eutelsat Communications had chosen EchoStar's Hughes division to supply its Jupiter satellite system for satellite broadband services being developed in sub-Saharan Africa.
London satellite startup OneWeb could be an attractive target, DeGasperi said. In 2015, OneWeb held a $500 million funding round that attracted investments from EchoStar's Hughes and Qualcomm (QCOM) - Get Report , among other companies.
"Granted, it wasn't a massive investment, but maybe now they think there could be real potential for an opportunity there," DeGasperi explained.
Additionally, SoftBank Group last December invested $1 billion in OneWeb, as the company works to provide internet access in rural areas and developing countries.