Gabelli & Co On Dish T-Mobile Merger Rumor: 'Dish It Up! Buy'

Shares of T-Mobile US Inc TMUS surged to fresh 52-week highs of $40.77 on Thursday, while shares of DISH Network Corp DISH were higher by more than 6 percent after The Wall Street Journal reported the two companies are in merger talks.

In a report published Thursday afternoon, Sergey Dluzhevskiy of Gabelli & Company noted that the report shouldn't be viewed as a surprise.

"As we've stated in the past, we view Dish Network as the most likely near-term buy of T-Mobile," Dluzhevskiy wrote.

According to Dluzhevskiy, Dish Network needs to find a way to create value from its "vast" spectrum assets and begin utilizing or monetizing them while also de-risking its legacy business. A combined company would create an entity with over 150 MHz of spectrum nationwide, a figure that is slightly higher than AT&T Inc. T spectrum depth and also 40 MHz greater than those under Verizon Communications Inc. VZ's control.

Dluzhevskiy continued that a combination of a sizeable wireless business with "strong" operating momentum coupled with Dish's "vast" spectrum portfolio could "turbo-charge" T-Mobile's growth and enhance the value of the combined entity.

Other Players?

However, Dluzhevskiy stated that there could be other companies with an interest in acquiring T-Mobile.

For example, Comcast Corporation CMCSA may need to decide sooner rather than later if it needs to own a wireless business (instead of partnering with one) to avoid placing itself in a competitive disadvantage in the future. There is also an outside chance that a foreign firm (such as America Movil SAB de CV (NYSE: AMX), Altice, Iliad, etc) shows interest in acquiring T-Mobile, he said.

Bottom line, Dluzhevskiy maintained a Buy rating on T-Mobile as shares should command a 7.0-7.5x FY multiple in a buyout/consolidation scenario.

The analyst's 2016 PMV (private market value) stands at $49 per share (based on a 7.25x 2016P EBITDA multiple). At a 7-7.5x EBITDA, shares could be worth $47 to $52.