My understanding is that $265 million in total is remitted to Loral Space & Comm from the Orion 3 mishap. Orion's debt, which I posted the other day, could in part be paid down, but on the other hand Loral Space & Comm will have in excess of $820 million in cash once it receives the insurance proceeds (shortly). How that money is divied up will be interesting. With $820 million in the till, once the Globalstar 32 are up, Loral could in fact make some acquisitions, and will probably have to deploy the cash in ways better than earning simple interest. I cannot see BLS simply letting that cash accrue interest, since that goes against his whole business culture. He has had to hold his cash close to home awaiting the final Globalstar launches-- against his usual habit of spending excess cash on earnings accretive assets. With this in mind Tom Watt's research claim yesterday (from Merrill) that the Orion 3 failure "sets Loral back two years in Asia" becomes both an "intemperate" (to use another's word) and more likely than not plain outright wrong remark. Pardon my bluntness, but you would think these analysts would be more humble in their statements given the gross errors they have made in the past on these satellite companies (especially as regards Iridium-- which I don't say I am glad happened, I am not, but point it out as an example).
Valueman made a good point, one of many, a few weeks ago on the EBITDA multiple given to Loral currently. It was pointed out to me that if you look at the multiple given PanAmSat just eighteen months ago as it was growing its EBITDA, the claim of one analyst on Wall Street-- maybe four-- that Skynet deserves no better than a 10 multiple on trailing EBITDA turns out to be fishpond thinking. Check out the multiple PanAmSat had on its 12 month trailing EBITDA in 1998, and back that into Skynet. You get just under $18/Loral share [and this excludes all the other components]. So we can see where Valueman was coming from in his comment, which leaves the question why Skynet, whose EBITDA is simply surging over the past three quarters, gets the low valuation it does. FWIW, I am told that Skynet leasing business is overbooking, and has been for some four weeks. I for one will be interested in seeing the multiple Skynet gets once Telstar 8 is in orbit.
There is reputable analysis we use (one that is outside of Wall Street) that "sum of the parts" is not appropriate to a communications company like Loral (and I personally do buy that analysis). It shows the disparity in price is even more severe. This analysis states Loral is a telecommunications company that uses satellites, instead of chips, cards, phones, fiber, as its main medium. That is the only difference-- if so, the sum of the parts method is, to use this research firm's word, "quaint"-- but "inapt".(Just see Salomon Smith Barney with a $24 year end number and Lehman just over $32 with the same sum of the parts method being used to come to a price. A 25% difference in price on the same company using the same methodology must mean the methodology is filled with assumptions and guesses.)
I can remember back in the early 1990s. We owned Lotus Corp-- LOTS at the time. Hambrecht and Quist, the venerable firm in San Fran, had downgraded Lotus on a Friday morning-- we sold stock on that downgrade that day. All Wall Street, I believe, had finalized their "hold" (aka "sell") recommendations on LOTS that day-- I think H&Q was the last to fold. LOTS, as I remember, closed about $29 5/8 or so on that day.
Two days later (a Sunday) Louis Gerstner of IBM bid $60/share cash for LOTS. When some time later asked about the disparity between Wall Street valuations and IBM's own estimate of LOTS' worth, he responded (to the effect): "A company is worth whatever a takeover buyer is willing to pay for it, not what a brokerage firm says it is". |
