Loral Investors Call for Sale of Globalstar Telecommunications
--From AOL.-- Cooters
New York, May 3 (Bloomberg) -- Loral Communications Ltd. shareholders are calling for the company to sell its 45 percent stake in Globalstar Telecommunications Ltd., a satellite-telephone operator that continues to lose value and respect on Wall Street.
Globalstar shares have plunged as much as 82 percent this year after bankrupt satellite-phone system operator Iridium LLC collapsed and investors began to wonder if a market for the phones exists. Investors are pushing Loral, the second-largest satellite operator in the U.S., to stop sinking money into Globalstar and concentrate on Internet and data services.
Globalstar is the only satellite-phone company that hasn't filed for bankruptcy or shut down. Globalstar's vision was to sell its service in remote areas of the world where cellular didn't reach. Like ICO Global Communications Ltd., now being reorganized, and Iridium, which folded March 17, Globalstar has been struggling to lure customers since starting up last October.
``Loral had better start divorcing itself from Globalstar before it takes down the whole operation,'' said Adam Comora, an analyst at Entrust Capital Inc., which has sold short Globalstar shares, a transaction in which Entrust will profit if Globalstar stock declines.
``Globalstar needs $600 million a year to operate, and revenue doesn't look like it will come near that number,'' Comora said.
Failed Competitor
Iridium, which was founded by Motorola Inc., shut down after failing to attract a bid for its assets. Analysts blamed the company's bulky phones, which cost as much as $3,000 and didn't work well in buildings and cars. The problem, analysts said, is that satellite-telephone companies are trying to market their service at a time when prices for cellular phones and service have dropped dramatically.
Globalstar shares have fallen 72 percent so far this year after five analysts cut their ratings on the company when it failed to deliver expected subscriber numbers. Loral shares have fallen 63 percent this year.
The C.E. Unterberg, Towbin Satellite Index of 24 stocks has fallen about 12 percent this year, while the Standard & Poor's 500 Index has slipped 4 percent.
Globalstar's 11.375 percent notes due 2004, which were trading near 60 at the end of 1999, have fallen 38 percent this year to about 37 1/4, investors said.
Soros Sells
Those losses have spurred a selloff by investors including Soros Fund Management LLC, the investment advisory business formed by billionaire George Soros, which sold its entire 5.33 percent stake in Globalstar last month. Soros said Friday that he would revamp his hedge funds after being hurt by bets on technology stocks and currencies.
John Dixon, chief investment officer at Taras Funds Ltd., recently sold his stake in New York-based Globalstar as well as Loral, saying Globalstar was beginning to show early signs of failure similar to Iridium's.
``While Globalstar management has repeatedly claimed Iridium to be irrelevant, they have seemingly failed to glean valuable lessons from Iridium's demise,'' said Dixon, who sold his Globalstar bonds in February. ``Handset prices remain far too high, minutes-of-use estimates are too high, as are market-size estimates.''
Globalstar currently is worth about $5.25 billion, with about $2.75 billion in equity and $2.5 billion in debt, said Tejas Securities Group analyst Blake Carter, who has a ``sell'' rating on the company. Globalstar has enough money to sustain it only through the fourth quarter and will need to sign up at least 500,000 subscribers by year-end to stay in business, he said.
``They're going to have to add subscribers to the system or raise more money or file for bankruptcy. That's the reality,'' Carter said.
Cyberstar Unit
Selling the Globalstar stake would allow New York-based Loral to concentrate on its Cyberstar unit, which will begin providing satellite-based Internet and data services next year, said Merrill Lynch analyst Bill Pitkin, who has a ``long-term neutral'' rating on Globalstar stock.
``Concentrating on Cyberstar at a time when broadband and data and Internet are really in growth mode could be a saving situation'' for Loral, Pitkin said. ``Or they could continue to sink money in Globalstar, which will drag Loral down.''
Globalstar, which began service in 11 countries on Jan. 1, has repeatedly revised forecasts and now expects to have 557,000 phones in service by year-end. The company, which is charging about $1,500 for phones and about $1.50 a minute for service, had shipped about 40,000 phones by the end of 1999. Globalstar plans to report first-quarter subscriber figures later this week, a company spokesman said.
Globalstar shares today fell 1 3/8 to 12 1/16 in midafternoon trading. Loral fell 7/16 to 9 1/16.
CEO's Decision
The decision to sell off Globalstar ultimately rests with Chief Executive Bernard Schwartz, who says he's convinced that Globalstar will work. The 74-year-old chairman of both Globalstar and Loral is known for being a timely investor who made millions of dollars in 1996 from the sale of Loral's defense and electronics unit to Lockheed Martin Corp. for about $9 billion.
Schwartz declined to comment.
``Bernard Schwartz has the ability to salvage Globalstar if he takes drastic measures now,'' Dixon said. That means ``slashing the cost of handsets to compete with top-end cellular (providers) to about $300 a handset.''
Schwartz, who took control of Loral in 1972, started Globalstar with partner and handset maker Qualcomm Inc. in March 1994. Delays in equipment testing and the loss of 12 satellites in a failed rocket launch in September 1998 delayed the start of Globalstar's service by about a year.
Even if Schwartz does cut costs, Globalstar's decline this year has shut Loral out of the equity market, investors said.
``Loral equity is already trading for less than it's worth with a complete writeoff of Globalstar,'' Dixon said.
May/03/2000 14:30 |
