Dish Network’s Shareholders File A Suit Against Charlie Ergen Over The Secured Debt Of LightSquared

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Dish Network (NASDAQ:DISH) made a $2 billion bid in May to acquire LightSquared Inc., which is currently navigating its bankruptcy proceedings (See – Dish Eyes More Spectrum With LightSquared Bid). Recently, the shareholders of the company in a derivative filing claimed that co-founder of Dish, Charlie Ergen, was looking out for his own conflicting interest as the holder of $1 billion in LightSquared debt and this has not only endangered the company’s bid for LightSquared’s spectrum but also exposed Dish to liability for interfering with the bankruptcy. [1]

The situation is getting complex for Dish. The company’s fate over LightSquared licenses is now dependent on the decision over proposed reorganization of LightSquared. If that is approved, Dish won’t get any assets of the wireless network company.

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What Is Ergen’s Role In LightSquared’s Bankruptcy?

Charlie Ergen, through a hedge fund, has been acquiring LightSquared debt since the company entered Chapter 11 in May 2012. Ergen is now LightSquared’s biggest creditor with more than $1 billion in secured debt. [1] Earlier in August, Harbinger Capital sued Dish and Ergen claiming manipulation of the bankruptcy process. [2] Harbinger wants to hold onto LightSquared’s valuable licenses in the company’s reorganization and is trying to block Ergen and Dish from acquiring them. On August 30, LightSquared proposed a reorganization plan that includes a potential sale of wireless spectrum instead of an auction led with a $2.2 billion bid from Dish. Now if this plan is approved, Dish will be left empty hands with none of the company’s assets. Ergen responded that LightSquared would not permit Dish to buy its debt, so he bought it instead and he won’t do anything against the shareholders of the company, as he owns 52% of Dish’s equity. LightSquared’s debt program contains a provision, which limits strategic buyers including Dish from purchasing its debt.

Dish And LightSquared Assets

Dish and LightSquared held similar vision of an LTE network. LightSquared with its ambitious LTE plans was able to interest investors earlier, but the company soon met with roadblocks such as the U.S. Federal Communications Commission (FCC) move to bar LightSquared’s planned national broadband network led the company to file for bankruptcy. The issue with LightSquared’s airwaves is that they are similar to the ones used by Global Positioning System (GPS) navigation systems and can cause interference. However, earlier in May, FCC chief said that he expects LightSquared to eventually win approval for using its airwaves, as they are too valuable to be left unused. [3]

Dish wants to have a competitive edge in the saturated U.S. pay-TV market by offering a viable bundling option where it can combine its satellite service and spectrum licenses with wireless capabilities. For Dish, LightSquared’s spectrum would be of specific benefit given that it’s licensed for Mobile Satellite Service (MSS). Dish amassed its MSS spectrum through the acquisitions of DBSD and TerreStar for $2.7 billion in 2011. [4] While Clearwire is the biggest holder of currently licensed and deployed spectrum, LightSquared is the largest holder of not-yet-deployed MSS.

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Notes:
  1. Dish Network & Charlie Ergen Sued By Shareholders Over $1B Debt Purchases, Deadline, Sep 26, 2013 [] []
  2. Falcone’s Harbinger sues Dish Network’s Ergen over LightSquared, Reuters, Aug 6, 2013 []
  3. FCC Chief Sees LightSquared Getting Cleared for Airwaves, Bloomberg, May 8, 2013 []
  4. Dish’s SEC Filings []
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