GSTRF<---------IS TOAST!! a huge zero!!
Loral Investors Call for Sale of Globalstar Telecommunications
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 P
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. |
