DISH’s Ergen Bids $2 Billion for Lightsquared’s Network

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Press reports (Katherine Burton & Alex Sherman of Bloomberg) indicate DISH Network Corp (NASDAQ:DISH)’s Chairman Charles Ergen made an offer of $2 billion for LightSquared’s spectrum holdings on Monday. The reports suggest the offer is good until the end of this month. The $2 billion by Ergen would cover the $1.7 billion in bank debt that LightSquared owes and could leave some value for its preferred shareholders. Depending on how much of LightSquared’s spectrum is eventually usable, analysts at JPMorgan estimate the $2 billion bid translates to anywhere from $0.22/MHz-pop for 30MHz to $0.33/MHz-pop for 20MHz. Separately, Sprint Nextel Corporation (NYSE:S) announced that it will enter a confidentiality agreement with Dish and furnish it non-public information.

DISH's Ergen Bids $2 Billion for Lightsquared's Network

Charles Ergen offers $2b for LightSquared:

Ergen offers $2b for LightSquared’s spectrum holdings, according to reports. Press reports indicate DISH Network Corp (NASDAQ:DISH)’s Chairman Charles Ergen made an offer of $2b for LightSquared’s spectrum holdings on Monday. Yes – Ergen, not DISH Network Corp (NASDAQ:DISH), though the spectrum could be eventually passed through to Dish. The $2b would cover the $1.7b in bank debt that LightSquared owes (there could accrued interest as well) and could leave some value for its preferred equity holders. Depending on how much of the spectrum is eventually usable,

JPM estimates on a per MHz-pop basis the $2b bid translates to $0.33/MHz-pop if only 20MHz is usable, $0.22/MHz-pop for 30MHz, and $0.17/MHz-pop for 40MHz. For reference, Dish offered $2.2b for 11.4b MHz-pop, or $0.19/MHzpop to Clearwire Corporation (NASDAQ:CLWR) for its spectrum, and paid $0.24/MHz pop for the spectrum it bought from Terrestar and DBSD. It is also interesting to note that press reports (also unconfirmed) indicate Sound Point Capital, a hedge-fund run by one of Ergen’s former bankers, has recently been buying up LightSquared’s bank debt and now holds more than $600m of it (WSJ, April 4). It is unclear whether Ergen is involved and neither he nor Dish has addressed the trades.

LightSquared’s spectrum holdings. Analysts at JPM believe that Lightsquared’s value is in 20MHz of L-Band uplink spectrum that is unencumbered and its 5MHz at 1675 GHz, as well as the option created by another 20MHz of spectrum that is encumbered by GPS. The company, backed by Harbinger Capital Partners, planned to utilize this spectrum to build out a nationwide wireless broadband network. The FCC gave LightSquared a conditional waiver to allow terrestrial use of the L-band spectrum located at 1525-1559MHz in 2011 but revoked the waiver in 2012 after interference issues were discovered with the GPS band at 1559-1610MHz. The company filed for bankruptcy protection in May 2012 and is scheduled to emerge out of bankruptcy proceedings by May 31, 2013.

FCC allows testing of substitute spectrum in proposed swap. After the revocation of the terrestrial waiver, LightSquared proposed to the FCC to swap 10MHz of its spectrum that’s adjacent to the GPS band for 5MHz of spectrum at 1675-1680MHz that’s currently allocated to the National Oceanic and Atmospheric Administration (NOAA). Earlier this month the FCC gave LightSquared permission to start testing in that spectrum for a 3- month period. If the testing goes well, LightSquared could then work with NOAA to make the swap and pair it with its 5MHz of spectrum at 1670- 1675MHz for a total of 10MHz of downlink spectrum for terrestrial use, which can then be paired with the 20MHz of uplink spectrum in the L-band for a total of 30MHz spectrum that it can then deploy for mobile broadband. However, the mere allowance of testing does not mean a swap
is imminent and the process could take years.

Possible uses for LightSquared’s spectrum holdings, if acquired by Egen. Depending on how much of LightSquared’s spectrum is eventually usable, Dish would have different options in utilizing the combined spectrum holdings.

1) If the spectrum next to the GPS band can’t be swapped out with the NOAA spectrum then Dish would be left with 20MHz of L-band spectrum that it could use for uplink, and paired with Dish’s existing 35- 40MHz of AWS-4 spectrum for downlink, making that more valuable (note that Dish would not even need a waiver for the L-band to operate a fixed wireless broadband product for the home via satellites).

2) If the spectrum swap does goes through eventually, DISH Network Corp (NASDAQ:DISH) would have another 10MHz of unencumbered downlink at 1670-1680MHz that could be used terrestrially. In either case it would also get an additional 10MHz of spectrum now encumbered by GPS that may eventually be worth something.

Where does this leave Dish? This would leave Ergen/Dish even more spectrum rich than it is today, but possibly with a longer time horizon to create value and still needing a partner. It could take a year or more to get the NOAA swap done, after which DISH Network Corp (NASDAQ:DISH)’s AWS-4 and L-Band spectrum would be worth significantly more. However, the company still needs a partner if it wants to really get into the wireless business. The L2 spectrum acquisition, if completed, could make it more likely that the FCC requires divestitures if Sprint Nextel Corporation (NYSE:S)/Clearwire Corporation (NASDAQ:CLWR)/DISH Network Corp (NASDAQ:DISH)merged, or make it harder for Dish to sell its entire spectrum hoard to another player.

Further reading Buy Lingerie for Her? No, Buy Her the Company

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