By Matt Wirz
It looks like Charlie Ergen swished his shot at the buzzer. But the basket might be whistled a foul.
The satellite-TV mogul (and ersatz TV host) scored in his battle to take over satellite operator DBSD North America, as his DISH Network Corp. announced a deal with DBSD’s in-Bankruptcy Management Team to buy the company for $1 billion.
But a hedge fund group led Highland Capital controls most of DBSD’s debt and it plans to fight the proposal at a hearing on February 15, said sources familiar with the matter.
Ergen’s offer, which combines cash and debt, is the latest twist in a three-year struggle over DBSD’s fate.
While DISH’s offer would pay bondholders back in full, it could take up to a year to land court and regulatory approval, and the buyer could back out at any time by paying a $25 million breakup fee, the people familiar with the matter said.
The funds prefer DBSD to swap its bonds for equity and emerge as a standalone entity in coming months, leaving them in control, as had been previously proposed.
DISH and DBSD declined to comment.
As The Wall Street Journal reported in December, Ergen has been using DISH and Echostar–- the hardware and network sides of his business-– to take over DBSD and TerrestarNetworks, another bankrupt satellite operator.
Both Terrestar and DBSD own licenses to contiguous broadband spectrum that, if combined, would hold far more value than either asset on its own.
Ergen could sell the broadband spectrum to the highest bidder, or use it to offer mobile video or satellite-Internet service.
DISH previously bought up 15% of DBSD’s $750 million bond and $50 million of loans outstanding against the company as a beachhead to take over the company.
The hedge funds that own the balance of the bonds defeated Ergen in bankruptcy and appellate courts by arguing that his status as a competitor to DBSD presented a conflict of interest that disqualified him from voting on how the company’s debt is restructured.
Ergen’s new stratagem to buy DBSD outright neatly turns the tables on the funds.
If the New York State Bankruptcy Court approves a vote on the acquisition, Highland and other holders will be deemed “unimpaired,” thereby losing their right to vote on the plan.
Ergen is fighting a two-front war to control a broadband spectrum dubbed the “S-band” for which DBSD and Terrestar hold exclusive licenses.
If consolidated, the property would provide a viable alternative to the national satellite network billionaire hedge fund manager Philip Falcone is building through his company,LightSquared.
Terrestar also is in Bankruptcy and much of it debt is also held by hedge funds, including Solus Alternative Asset Management and Stark Investments,which are fighting Ergen’s attempt to take over the company.
Echostar owns a much bigger chunk of Terrestar’s debt – over half – and its proposal to swap that investment for a controlling stake has met resistance from the funds who want minority shareholder protections when the company exits Chapter 11.
Ergen is expected to table a modified plan this week and will face off against the hedgies at a hearing on February 16. "
Ergen is expected to table a modified plan this week and will face off against the hedgies at a hearing on February 16. "
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