LightSquared Bid Dropped Over Technical Issue, Ergen Says

Dish Network Corp. Chairman Charles Ergen said he learned more about the technical issue that ultimately led him to drop a $2.2 billion bid for LightSquared Inc.’s wireless spectrum just before an auction for the airwaves was supposed to begin Dec. 11.

“On the day of the auction, Dish was prepared to move forward with $2.22 billion, although we had an inkling of the technical issue,” Ergen told U.S. Bankruptcy Judge Shelley Chapman in Manhattan today. The technical issue remains confidential.

Ergen, who also invested in the company’s debt, was testifying in a hearing that will determine how his $1 billion claim is treated in the reorganization of Philip Falcone’s LightSquared.

The Dish chairman’s statements about why he dropped the LightSquared spectrum bid came as Bloomberg News, citing several people with knowledge of the matter, reported that he recently contacted DirecTV Chief Executive Officer Mike White to discuss a merger of their two satellite-television companies.

Ergen, 61, made the approach in response to Comcast Corp.’s $45 billion acquisition of Time Warner Cable Inc. announced in mid-February, one of the people said, asking not to be identified discussing confidential information.

Drive Down

Today in bankruptcy court, the Dish chairman responded to questions from Glenn Kurtz, a lawyer for a group of lenders, about allegations that he withdrew the LightSquared bid to drive down the price of the spectrum after no rival bidders surfaced at the auction.

Kurtz asked Ergen why he told lenders shortly after the auction was canceled that he was dropping his offer when he had intended to pursue the LightSquared bid that morning. Ergen said he was learning more about the technical issue in “real time” that day, as experts from Dish who were at the auction presented him with new information.

LightSquared is seeking Chapman’s approval of a reorganization plan that would put Ergen’s claim last in line behind other creditors to be repaid. As a competitor, Ergen was barred from owning LightSquared’s debt, the company said. LightSquared also alleged in a lawsuit that the debt purchases were improper because Ergen concealed that he was acting on behalf of Englewood, Colorado-based Dish.

‘Blocking Position’

Ergen tried to fend off rival bidders by building up a “blocking position” in the debt before he made his own offer, according to LightSquared’s complaint. He then withdrew the bid in an attempt to get a better deal for the wireless spectrum and benefit his satellite businesses at Dish and EchoStar Corp., LightSquared said.

A seven-day trial of the lawsuit ended March 17 without a ruling from Chapman. Two days later, she began the hearing that continues today on whether LightSquared’s plan can be approved.

Ergen has said he acted only for himself in buying the debt and made no “false representations.” He characterized the lawsuit as an illicit ploy to help Falcone keep control of LightSquared in bankruptcy and said the case has cost tens of millions of dollars, eating into creditors’ recoveries.

Dish is still interested in acquiring more spectrum, Ergen testified today. An outside valuation expert estimated that LightSquared’s spectrum could be worth $5.1 billion to $8.9 billion to Dish, he said.

“Dish would purchase spectrum it felt was strategically important to it, and at the right price,” Ergen said.

Same Treatment

Ergen has argued that he should be treated the same as other creditors in his class, as is the rule in most bankruptcies. Under LightSquared’s plan, his debt would come behind the equity held by Falcone. Equity is typically last in line to be repaid.

Ergen also objected that the plan treats him as guilty of wrongdoing, though he hasn’t been proven so at trial.

In four days of testimony on the exit plan so far, the courtroom has been sealed several times so witnesses can be examined on technical issues about LightSquared’s spectrum, which are considered confidential.

Under its Chapter 11 exit plan, LightSquared is valued at $7.7 billion. Parties including Fortress Investment Group LLC would supply $1.65 billion in debtor-in-possession financing plus $1 billion in exit financing under the plan, which doesn’t hinge on regulatory approval for using its airwaves.

LightSquared, based in Reston, Virginia, sought court protection after the Federal Communications Commission blocked the company’s wireless service, saying it might interfere with global-positioning-system navigation equipment. The company listed assets of $4.48 billion and debt of $2.29 billion.

The case is In re LightSquared Inc., 12-bk-12080, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Before it's here, it's on the Bloomberg Terminal.