This isn’t my most favorite post; one I had hoped I would never have to write. As one of the board’s long-term bulls I finally had to capitulate. I have liquidated my G* shares and put the proceeds in Lor between 1.07 and 2.09 so I essentially got diluted by a ratio of about 4:1, a lot less than what I think will happen to the G* shareholders. I have no direct first hand knowledge but everything I hear and see tells me that the current shareholders are essentially toast. While I see no bk, I do see substantial dilution. Here is my educated but speculative guess as to what is happening:
Mid March – Blackstone presented a report to the partners essentially validating the long-term viability contingent upon all the partners shouldering their responsibilities. In Vod’s case, that meant spending several million more on gateways (Alaska, New Zealand) and several more million on advertising, sales and support. They were probably told to develop a direct sales force devoted exclusively to G*. Vod probably said, “No, we want out.” Since then Qcom and Lor have probably been scrambling trying to figure out how to keep the business together without Vod i.e. who will operate Vod’s gateways and who will take over their territories? They are probably are not discussing who will take over GUSA’s sales efforts because we all know, it didn’t exist! I think this was Bernard’s last hope. He probably knew that Blackstone would buy into to the long-term viability and was hopeful that in doing so, it would cause Vod to step up. The word I hear is that the GUSA employees will soon be clearing out their desks. That forces a major painful restructuring that is certain to be very rough on the current shareholders.
April/present – Probably the only thing the partners agree on is to not let it go into bk. As Pcstel has pointed out, everyone loses in bk including the bondholders. I do know that the bondholders through representation have been kept in the loop throughout this process and the only reason they have not forced a bk is because they realize that gets them zero. But why are the bonds now selling at 4.5 cents versus 12 to 15 cents 6 to 8 weeks ago? I think the survival plan is now to form a newco controlled by Qcom with equity issued to the current debt holders and sp’s for a negotiated value. So 3 billion of debt will be equitized. The current bondholders would have much preferred getting 30 or even 20 cents on the dollar but now they are being forced to take equity. So it is either that or zero hence 4.5 cents for the bonds vs. 10 cents + when they thought they would be taken out at 20 or 30 cents. This is my own speculation but I think it is fairly accurate.
The current gstrf shareholders will get a crumb in newco. It can’t be zero without bk but it won’t be much. We now own 36% of the LP. In newco we will be lucky to get 2%. The bulk of the equity will go to the debt holders with the balance going to the sp’s based on the negotiated value of their individual assets. I suspect those discussions are very lively at the moment. Vod will certainly get a decent piece for their gateways. They might even agree to continue to operate them in exchange for a larger piece provided someone else picks up the sales efforts. Qcom will emerge somehow in control and will be the driving force going forward. Once this plan is out, Qcom shares will be probably reach an all time low because the skeptics will want Qcom to not have anything to do with G*. But Qcom will win in the end and make a boatload of money off this system. The system is not going away.
So newco will essentially have the system with no debt and as George Gilder has stated, make a lot of money for the new owners, just not the current shareholders. Lor and Qcom will get windfalls because they have written off their debt and investment in G*. A successful newco will help the share price of both Q and Lor down the road. I believe that will happen which is why I am still in Lor.
Looking back, the handwriting was on the wall but many others and I ignored the signs. I have the dubious distinction of being the first to publicly endorse G*. I am still the guy on the GUSA web page. I was the 23rd paid subscriber in the US according to my subscriber number. So what were the signs? For starters my being the first endorser should have been a clue. Who am I? Believe me I was hoping to be dethroned long before now. The 23rd paid subscriber? Well ok, I bought in late December during the “soft rollout but 23rd? With any kind of marketing and aggressive pricing, I should have been about 10,023. My next clue was learning in mid February that some folks at GUSA and Lor/GLP were not getting along. I shrugged it off as just the underlings squabbling. Now I know, the rift went much deeper. In fact, it was fatal. Vod never got behind this. Remember when Chris Gent failed to show up in his own hometown to shake hands with Bernie during the UK kickoff in June? I rationalized my way through that one too. During all this time, I could have realized as much as 53/sh to a low of 7/sh. Yesterday I got 51 cents.
Most of you know that I spent a good portion of last year calling distributors all over Canada and the US. I have since gotten to know a handful and we still stay in touch. Those calls kept me optimistic. 90% of those contacted (50 + or -) saw the market, the demand, and felt it would be successful. My previous posts report my findings. Looking back, I now can conclude that those who believed in the product and aggressively tried to sell it did. In fact, they were making sales at 1500 per handset and 1.69/min. No US distributor that I contacted got any real support from GUSA. Many were in fact very critical and frustrated the the marketing plans and pricing schemes. Some even had to go around GUSA. I know one distributor who was not supposed to approach the military but was to turn those contacts over to GUSA folks. He did and nothing happened so he went around GUSA and sold phones to the Air Force.
Marketing has been discussed at length on this board so no need for me to beat a dead horse. We all know what could have happened. Maurice was absolutely correct in his assessment all along. Had they adopted even half of his approach, we would be happy campers right now. Guess what? Watch the handset prices go to near zero and min pricing drop to 60 – 80 cents once the restructuring is done. Then watch the mou's jump. It is called price elasticity. Pretty basic!
Who do I blame? Bernard? No, I don’t fall into that camp. I do not think Bernard in his wildest imagination felt that Vod would drop the ball as much as they did. Lor and Vod are partners in Brazil. As of the end of January, Vod had not yet provided one live human being to support Lor and G* in Brazil. Nor do I think Bernard or any of us could have predicted the market meltdown that occurred. I have yet to talk to someone who can tell me unequivocally that they outsmarted it. I have yet to find anyone who can say, “Yup, saw it coming and went to cash by March 31.” I am sure they are out there and maybe this post will cause a few to come forth, but most of us were blindsided by the meltdown. So was Bernard. I think G* would have found the needed funds in a market climate of 1999 but they don’t stand a chance today. And where do you suppose we would be if Iridium never happened? Anybody want to place bets on how long Iridium will be around even in its current form? And finally we have McCaw’s Teledisc/Ellipso/whatever combo. Not a chance unless G* eventually is wildly successful.
There are many others who predicted G*’s demise such as Geoff Goodfellow. I guess they can now pat themselves on the back for being right. The frustrating part is that I still firmly believe G* will be an ultimate success but the current shareholders will be left out. I guess that implies that the new shareholders will benefit. I wonder how many shares newco will offer to the public? I can assure you that I will not be one of the early shareholders but I will be watching.
Maybe the only smart thing I have done these last four years is to have bought more a little more Lor than G*. I was weighted about 60/40. Maybe I will recover some of this devastating loss through Lor.
I have spent a good part of the last four years embroiled in this saga and I am going to hang around to its ultimate conclusion. I will keep lurking and posting from time-to-time. I have very much enjoyed the interchange on this board getting to know some of you even if only by your handle. It saddens me to know that many of you have ridden this down as I have. Let’s hope we can all benefit in some way by this experience and live to fight and maybe make a buck another day. Best regards to all – Jim P |
