The buyout group looking to take British satellite company Inmarsat private is facing a legal challenge from hedge funds that could scupper the deal at the 11th hour.
At a hearing on Tuesday hedge funds led by Oaktree Capital will press the High Court to block the approval of the so-called scheme of arrangement, one of the final steps in the Inmarsat takeover.
The funds have built up stakes in Inmarsat after the satellite firm agreed in May to be bought by a consortium led by private equity firms Warburg Pincus and Apax Partners in a $6bn (£4.6bn) deal.
They argue that the price tag is too low because Inmarsat is set to receive an income boost from a US project that could gain approval from regulators this month.
Oaktree, along with hedge funds Kite Lake and Rubric, say a venture called Ligado could push up the value of Inmarsat.
Ligado seeks to use the part of the spectrum of radio frequencies it rents from Inmarsat to create a wireless network across the US. It argues it could be part of the development of super-fast 5G internet.
The Federal Communication Commission (FCC) would have to alter Ligado’s license for the firm to develop its plans. Ligado’s project has already been blocked once by regulators over fears it would disrupt GPS.
A person close to the deal said the hedge funds’ challenge, first reported by the Sunday Telegraph, is “flawed on a number of different levels”.
They said there is little evidence that Ligado could gain approval from the FCC anytime soon. They added that even should the scheme be approved, there would be a long way to go before Inmarsat would see a boost in earnings.
In High Court filings, Rachelle Chong, a former FCC commissioner and lawyer spoke as an expert witness for Inmarsat. She said: “It is pure speculation to opine that an FCC decision on the Ligado application is close to being made.”
She pointed to a recent objection by the US Secretary of Defence Mark Esper, who said Ligado’s plans could disrupt the US military’s GPS systems.
The consortium’s deal to buy Inmarsat expires on 10 December. Should the High Court challenge be successful, the private equity firms would face a last-minute rush to work out another approach, which could see them raise their buying price.