not925:
First and foremost, as I know nothing of your particular circumstances, risk aversion or investment priorities, I am not suggesting that you (or anybody else should for that matter) go out and buy Globalstar. My first post was a statement of perspective written because we were aware that various constituencies would draw conclusions from our SEC filings. We have made an investment decision that contemplates the company’s risk profile, our investors’ risk profile, and at an appropriate commitment level for our assets under management. This having been said, our success as a risk-averse value manager is based on a desire, willingness and capability to think outside the box.
We were Qualcomm’s largest shareholder for years during which it would have been difficult to characterize the stock as a value if one were saddled to traditional fundamental analytical metrics. While we adamantly believed that Qualcomm was grossly undervalued, this conviction derived from our understanding of CDMA, the technology’s likely impact on the wireless marketplace, certain customers (read wireless operators) strong preference for it, and our calibration of the value (read cash flow) that would ultimately derive from it. When we bought Qualcomm, conventional wisdom ran diametrically opposed to our conclusions, and as such, we believed that the ensuing discount more than mitigated our risk.
We take a similar position with regard to Globalstar. Based on our work with people who are actually marketing the service for a living, we believe the Street is quite out-to-lunch regarding the demand picture. As a consequence, we believe that the current draconian view of an extraordinarily dilutive financing, or even bankruptcy, is substantially out of synch with the most probable business realities. While the bears are banking substantially on the latter, and hoping for the former, I believe that Globalstar’s most probable outcomes contrast quite markedly with their perceptions. Therefore, while we acknowledge that there is not inconsequential risk, we believe that is has been largely impounded into the consolidated valuation of the debt and equity. Simply put, one could argue that our $60 million investment controls in excess of 10% of the economics of an entity that you believe could be worth $40 billion. While I would not venture to be as aggressive as you suggest, I believe the risk/reward ratio to be truly extraordinary.
Think about it this way. Wall Street is virtually unanimous in the view that Globalstar is a casket case. As a value-investor, I am a contrarian at heart, so as a baseline this kind of unanimity inevitably stirs my pulse. Now, after carefully perusing the so-called research being spewed from the Street, I find that consensus is predicated on what I have come to be to be a flawed premise, i.e. GSTRF built a network that nobody needs. Not only have most of the believers exited stage right, but every bear and his brother is betting that the company is one step from Chapter eleven. In contrast to this perspective, the service providers that I have spoken with...and remember, these are the people actually selling the service...seem more than satisfied with the progress to date and repeatedly indicate that they do not see demand constraints. The dichotomy between reality and fear of the unknown is maximized.
Timing is, of course, everything. Can the stock trade lower? Sure. Can I hope to assemble an economically meaningful position at the bottom? Of course not. The bottom line, however, is that I believe that within a six-month window the company will begin to demonstrate significant operating traction. Once investors come to understand that the bear argument is wrong and there is a significant worldwide demand for the Globalstar service, follow-on financing will not prove to be difficult to accomplish or dilutive enough to compromise our return opportunity. That, by the way, is why the last $250 million in financing was so important. Regardless of Lockheed’s pleasure, or should I say, displeasure, Bernard now has enough time and money to begin proving his business case.
Yours is too well considered, and too coyly written, to be a random retail query. While I won’t wish you good luck with your position, I would suggest that you attempt to do some work of your own, sans the Street’s ‘help’. |
