Dish Network Corp. (DISH:US)’s motion to drop its $2.2 billion offer for airwaves owned by LightSquared Inc. became the focus of a trial over how Dish Chairman Charles Ergen bought debt in Philip Falcone’s bankrupt wireless broadband company.
Dish sent a termination letter just before a trial began today in Manhattan bankruptcy court, where the satellite-television company and Ergen are accused of improperly acquiring the LightSquared debt.
Lawyers for LightSquared told U.S. Bankruptcy Judge Shelley Chapman that Dish’s latest move may be a gambit to drive down the price of the assets. The lawyers said Ergen began stockpiling the debt in 2011, the year before LightSquared’s bankruptcy, and spent $800 million of his personal wealth, including money in his daughter’s trust fund.
“One can only speculate why they withdrew at this point in time,” Matthew Barr, a LightSquared lawyer, told Chapman. He said Ergen may be trying to force the company to the brink of liquidation so he can get a better deal for the airwaves, or may even be trying to put a competitor out of business.
Chapman was told Jan. 7 that Dish might drop its offer because of a technical problem.
The termination notice Dish submitted later said it wants to end the deal because LightSquared missed “milestones,” David Friedman, a lawyer for Falcone’s investment fund Harbinger Capital Partners LLC, told Chapman. That’s different from the technical issue it cited earlier and the milestones in question were passed months ago, Friedman said.
The trial pits billionaires Ergen and Falcone against each other over a company that LightSquared has said may be worth as much as $10 billion. Falcone, 51, has proposed that he hold onto the Reston, Virginia-based company, into which he has already sunk $3 billion.
“The battle is really Charlie and Phil wrestling for control,” Erik Gordon, a professor at the University of Michigan’s business and law schools, said in an interview before the trial began. “In addition to dollars and cents, you’ve got two guys, each guy’s ego is big enough to fill up a room.”
A lender group will seek to force Dish to proceed with its bid, according to a person familiar with the matter, who asked to remain anonymous because the issue isn’t public.
“The lenders were on Dish’s side against Falcone,” Gordon said today. “Now there may be a three-way fight among Falcone, Dish and the lenders.”
LightSquared and Harbinger sued Ergen, Dish and EchoStar Corp. (SATS:US) in August. Dish is a satellite-TV provider, while EchoStar makes satellite-broadcast equipment. Ergen, the 60-year-old chairman of both Englewood, Colorado-based companies, wants to diversify by moving into wireless, Harbinger said in court papers.
Ergen is accused of surreptitiously buying LightSquared debt and blocking attempts to reveal who was behind the purchases. He knew LightSquared’s credit agreement prohibited competitors such as Dish and EchoStar from owning the debt, according to the plaintiffs.
According to Ergen, the purchases were smart and the entity that bought the debt, SP Special Opportunities LLC, is distinct from Dish and EchoStar. He has said he was buying on his own, personal account, and made no “false representations” about the purchases. He has called the suit an attempt to derail his offer to buy LightSquared’s assets.
The trial may determine whether Ergen’s claim on about $1 billion in LightSquared debt will be disallowed.
Joshua Sussberg, a lawyer who represents LightSquared, told the judge today that proceeding with the trial may let his client get any profit Ergen’s fund made from its debt purchases, something that would help with a stand-alone restructuring.
Tom Lauria, a lawyer for the lender group, told Chapman that the lenders are “considering all alternatives” and are still in talks with Dish to see what the consequences of its motion to terminate will be.
Ergen spent about $800 million, on LightSquared debt, including money he withdrew from a trust fund he and his wife managed for his daughter, said Friedman, the Harbinger lawyer.
Friedman argued that Ergen felt confident taking money from his daughter’s fund because he was making the investment as someone who controlled Dish and thought he would be able to “recycle” the money back to his daughter through the purchase of LightSquared.
Falcone was never able to find out who was buying, alternately asking if it could be Ergen, Mexican billionaire Carlos Slim or AT&T Inc. (T:US), Friedman said.
Rachel Strickland, a lawyer for Ergen, said her client started buying the debt before anyone could have known that LightSquared would file for bankruptcy.
“While grand master plans hatched years in advance make for good court pleadings, they are not based in reality,” Strickland said. She said Ergen didn’t want to reveal his link to SP Special Opportunities because it could have driven up the price of the debt if investors found out Ergen was interested.
“Ergen is a natural person. He is not a subsidiary,” Strickland said. She said Falcone also acts in his own personal interest, independently of LightSquared or Harbinger.
LightSquared has said that SP Special Opportunities is also linked to Dish because Dish Treasurer Jason Kiser was acting on the satellite-TV company’s behalf when he caused SP to execute its purchases.
Strickland said Ergen has known Kiser for 27 years and hired him for his first job out of college. The two have a close, trusting relationship and do personal favors for each other, she said.
“Jason is familiar with his accounts, his real estate,” Strickland said. “He helped him buy his ranch.”
LightSquared filed for bankruptcy in May 2012, listing assets of $4.48 billion and debt of $2.29 billion, after the Federal Communications Commission blocked the company’s service, saying it might interfere with civilian and military global-positioning-system navigation equipment.
SP Special Opportunities is part of a group of lenders that owns about $1.4 billion of $1.7 billion in debt issued by LightSquared’s main “LP” unit and backs Ergen’s proposal. Under the Ergen plan, LightSquared could satisfy its debts while he addressed the technical and political barriers to regulatory approval.
LightSquared has said it should be the one to maintain control of the assets. Its plan includes $2.5 billion in financing backed by Fortress Investment Group LLC (FIG:US), JPMorgan Chase & Co. (JPM:US) and Melody Capital Advisors LLC, and would require the company to get regulatory approval before reorganizing as a stand-alone business.
A hearing to seek confirmation of a final plan to reorganize the company is still scheduled for Jan. 21.
The case is In re LightSquared Inc., 12-bk-12080, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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