Dish shareholder sues Ergen; LightSquared spectrum auction set for Nov. 25

An entity controlled by Dish Network (NASDAQ: DISH) Chairman Charlie Ergen was selected as the lead bidder in an auction for LightSquared's spectrum assets with a $2.2 billion bid as the bankruptcy court judge set the dates and rules for the auction of LightSquared's assets. Meanwhile, an investor has sued Ergen for his role in using a hedge fund to buy LightSquared's debt, which has made him LightSquared's biggest creditor with more than $1 billion in secured debt.

On Monday, U.S. Bankruptcy Judge Shelley Chapman approved Dish's stalking horse bid, and set the auction for Nov. 25, which is earlier than the original date of Dec. 6 (although the final confirmation of the auction bids is unchanged and will remain Dec. 10).

According to Law360, the agreement LightSquared reached with its lenders also allows Harbinger Capital Partners, the hedge fund owned by LightSquared founder Phil Falcone that still controls LightSquared, to potentially select another buyer for the spectrum  or move forward with its own Chapter 11 restructuring plan outside of the auction. At the auction, potential buyers may bid for whatever portion of the assets they want, and Harbinger may bid as well, the report said.

Dish has asked the FCC to let it use the 2000-2020 MHz band of its AWS-4 spectrum for downlink operations instead of uplink, and LightSquared has asked the FCC to let it use its L-band spectrum for uplink operations. The theory is that Dish could then pair its AWS-4 spectrum with LightSquared's airwaves and have more spectrum for downlink (Dish also controls the 2180-2200 MHs AWS-4 band for downlink). All of the maneuvering could substantially enhance the value of Dish's spectrum portfolio, according to analysts.

"We believe the hearing on bidding procedures was positive for Dish for two reasons: 1) it affirms Dish's bid as the stalking horse bid for the 40 MHz of L-Band spectrum assets held at LightSquared LP; and 2) the timeline for the auction schedule is largely the same as under Dish's original proposal," New Street Research analyst Jonathan Chaplin wrote in a research note. "The fact that bids conditioned on FCC approval for the use of the spectrum certainly makes it easier for others to make offers; however, we think Dish's unconditional $2.2 billion bid will have the edge over conditional bids (unless extremely compelling)."

LightSquared entered bankruptcy protection in May 2012 after the FCC revoked its conditional license to operate because of unresolved concerns that its network would interfere with GPS receivers.

Meanwhile, a lawsuit filed on behalf of the city of a Dish shareholder Daytona Beach Police Officers' and Firefighters' Retirement System claims Ergen used his position in Dish to make personal gains by buying LightSquared's secured debt. Ergen, through an entity called SP Special Opportunities, has reportedly purchased LightSquared's bank debt at a discounted rate and could profit if Dish succeeds in buying LightSquared. SP Special Opportunities is wholly-owned by Ergen and Ergen accumulated LightSquared debt worth more than $1 billion, but reports have said some trades for the debt were around 50 or 60 cents on the dollar, with other purchases made for higher prices.

According to the Denver Post, the suit claims that "whereas most investors would be cautious about purchasing nearly $1 billion of debt out of bankruptcy, Ergen had reason to be confident: He knew as an insider at Dish that the company was looking to acquire spectrum assets like those owned by LightSquared."

"If Ergen is able to profit on his LightSquared debt purchases, he will be unjustly enriched at the company's expense," according to the suit, which was filed last week in federal court in Denver. "Because Ergen identified, pursued, and secured the opportunity to purchase LightSquared's debt through his misappropriation and use of Dish's confidential and proprietary information, it would constitute unjust enrichment if Ergen is able to profit from it."

Dish declined to comment, according to the Post. Falcone and Harbinger have also sued Ergen, alleging that he is "engaging in a fraudulent scheme" as part of his plan to acquire LightSquared.

For more:
- see this Denver Post article
- see this Trefis post
- see this court document (PDF)
- see this Law360 article (sub. req.)
- see Dow Jones Newswires article

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