By Nick Brown
NEW YORK Jan 9 Satellite television company
Dish Network Corp has withdrawn its $2.2 billion bid to
buy bankrupt wireless broadband company LightSquared Inc,
throwing the future of LightSquared's valuable spectrum rights
into further doubt.
Lawyers involved in LightSquared's bankruptcy confirmed Dish
had pulled its bid at the start of a trial Thursday over whether
Dish Chairman Charles Ergen had unlawfully bought LightSquared's
debt in an effort to take over the company.
Dish, which is considering entering the wireless market, saw
its shares fall 2.6 percent. Its shareholders had considered a
deal with LightSquared a good way for the company to expand its
capacity to provide mobile video and other Internet services.
LightSquared's creditors had supported Dish's bid, but
LightSquared itself and its controlling shareholder, Phil
Falcone's Harbinger Capital Partners, had opposed it. Harbinger
is pushing a separate $4 billion restructuring, financed in
large part by Fortress Investment Group.
The news, first reported by the Wall Street Journal late on
Wednesday, came on the eve of a trial in which Harbinger and
LightSquared accuse Dish and Ergen of buying up LightSquared's
debt surreptitiously to take control of the company.
The trial, in the U.S. Bankruptcy Court in Manhattan, could
determine LightSquared's structure when it eventually comes out
Harbinger and LightSquared have alleged that Ergen used a
separate entity to buy LightSquared debt to hide the identity of
the buyer and get around a credit agreement that barred such
purchases by competitors.
The entity then delayed the closing of certain trades to
hinder LightSquared's efforts to negotiate a consensus
restructuring with creditors, Harbinger and LightSquared have
At Thursday's hearing, Matthew Barr, a lawyer for
LightSquared, said Dish's decision to pull its bid at the last
minute may be an attempt to hurt LightSquared, either by forcing
it to liquidate or by allowing Dish to swoop in later with a
But Robert Giuffra, a lawyer for Dish, said "speculation is
not the stuff of proof."
David Friedman, a lawyer for Harbinger, drew a laugh from a
packed courtroom when he characterized Ergen's debt buys as
Friedman rejected Ergen's position that the debt purchases
were personal rather than made on Dish's behalf, saying Ergen
used money in a family trust yet did not tell his wife, who was
"If it's a personal investment, you would think there would
be some discussion within the marital unit," Friedman said. "As
in, 'Honey, I'm gonna spend all my money on spectrum assets -
what do you think?'"
Ergen also used money from his daughter's trust fund,
Friedman said, a move he only would have considered safe if he
knew he could replenish the fund through a Dish acquisition of
Lawyers for Dish rejected that argument, saying that gaining
a controlling stake of a company's secured debt class, as the
Dish entity did, does not guarantee a favorable result. "His
wife and his daughter may be mad, but he's got no downside
protection," Giuffra said.
Rachel Strickland, another lawyer for Dish, said bankruptcy
plans can be approved over the objections of creditors in some
cases, and another entity could have outbid Dish.
"This case is very long on innuendo and inference, and very
short on evidence," Strickland said.
LightSquared declared bankruptcy in May 2012 after the
Federal Communications Commission blocked its plans to build a
wireless network, saying it could interfere with GPS networks.
The battle for LightSquared pits two outsized personalities,
those of Falcone and Ergen, against each other.
A lawyer for LightSquared said that Ergen would testify in
the case on Monday. Falcone could also testify in the trial,
which is expected to last about a week.
Harbinger wants to retain some control of the company,
saying it can regain regulatory control and ultimately salvage
the wireless plan.
Dish, meanwhile, has spent billions of dollars buying
spectrum, but has struggled to find a way to put that spectrum
to use. Ergen has said he wants to use the airwaves to build a
broadband service for wireless delivery of video.
Its withdrawal from the auction meant Dish would lose
spectrum, which could have matched well with airwaves it already
owns, analysts at Barclays wrote in a note for clients. While
Dish could have other options to acquire more spectrum, it has
benefited from obtaining spectrum through bankruptcies, they
"If the company participates in an active auction process,
the upside to the equity is proportionately lower," the analysts
Dish's shares were down $1.48 at $56.48 at the end of
trading on the Nasdaq.
The case is In re: LightSquared Inc, U.S. Bankruptcy Court,
Southern District of New York, No. 12-12080.