Falcone-backed telecom tests IPO waters

NEW YORK/BOSTON Mon Apr 11, 2011 3:39pm EDT

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NEW YORK/BOSTON (Reuters) - Billionaire hedge fund investor Philip Falcone may have found a way out of his risky wireless telecom bet through a possible initial public offering, three sources said.

LightSquared, the upstart telecom backed by Falcone's hedge fund, could file for an IPO as early as this summer, said one person familiar with the matter. It has been meeting with Wall Street telecom analysts and institutional investors to discuss its business plan.

A LightSquared spokeswoman declined to comment on the matter, saying the company does not discuss "rumors."

Falcone has staked the future of his Harbinger Capital Partners hedge fund on LightSquared, which is hoping to build a nationwide high speed wireless communications network by 2015.

About half of Harbinger's $6 billion of capital has been poured into LightSquared, and an initial public offering for the company could be the beginning of Falcone's exit from the investment. An IPO would be one way for Harbinger to cash-in its significant equity stake and begin returning money to the hedge fund's investors.

Just last week, LightSquared executives met in New York with a telecom analyst from Morgan Stanley (MS.N) and representatives from several mutual funds, said three analysts familiar with the situation. The meetings were held at LightSquared offices in Manhattan, located in the same building as Harbinger. LightSquared is based in Reston, Virginia.

A Morgan Stanley spokeswoman declined to comment.

LightSquared, sources say, is trying to organize a similar meeting with industry analysts and institutional investors on the West Coast for sometime next month.

But some industry analysts said LightSquared would have hard time going public without first reaching a deal with a strategic telecom partner like Sprint (S.N) or Verizon Communications (VZ.N).

"They need some big contract to convince people that they have an anchor tenant for this network," said independent telecom analyst and consultant Tim Farrar. "Nothing they have done so far comes close to demonstrating that."

BIG BET ON WIRELESS

Falcone's big bet on LightSquared has emerged as one of the most daring and risky in the $1.9 trillion hedge fund industry. Some of his hedge fund investors have told Reuters they have grown increasingly uneasy as they wait for his telecom bet to pay-off and watch the rest of his portfolio holdings perform poorly.

Falcone could be rescued by the red-hot IPO markets, where investors have shown an appetite recently for big offerings from companies loaded with debt. In March, for example, hospital operator HCA Holdings Inc (HCA.N) sold some $4.4 billion of shares. The private equity-backed company has a negative net worth as measured by the book value of its assets after debt.

Last year, Harbinger's flagship fund declined 12 percent and this year the fund fell another 4 percent in the first-quarter. Harbinger's lackluster performance in 2010 is one reason Falcone fell-off AR magazine's list of the best-paid hedge fund managers.

Industry analysts estimate that LightSquared, which took out more than $1 billion in loans with the help of bankers from UBS UBSN.VX and JPMorgan Chase (JPM.N), still needs to raise at least an additional $6 billion to build-out its communications network.

Reuters previously has reported that bankers with UBS are telling prospective investors and industry analysts that LightSquared could be worth more than $10 billion when its wireless network is built out, based on the demand of high-speed Internet access.

LightSquared is trying to position itself as a low-cost alternative to the big wireless operators like Verizon and AT&T (T.N) , which recently proposed a $39 billion deal for Deutsche Telekom's (DTEGn.DE) T-Mobile USA.

In March, LightSquared announced that Best Buy Co (BBY.N) and Leap Wireless International LEAP.O agreed to purchase its wireless service.

But Farrar and several other analysts who did not want to be named said the deals with Best Buy and Leap Wireless are not large enough for the company to consider going public.

(Reporting by Matthew Goldstein and Svea Herbst-Bayliss; Editing by Tim Dobbyn)

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