Stock Shorter Trashes Globalstar Spectrum Value

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PARIS — An investment company that has made a substantial bet against the stock of mobile satellite services provider Globalstar Inc. on Oct. 6 publicly trashed the stock and the company, saying Globalstar is equivalent to a dead man walking.

New York-based Kerrisdale Capital Management, in a webcast and accompanying written report that used unusually harsh language, said Globalstar’s effort to have U.S. regulators license its satellite spectrum to augment Wi-Fi spectrum in the United States is “a non-solution to a non-problem.”

Globalstar’s spectrum “is worthless” as an adjunct to existing terrestrial Wi-Fi spectrum, Kerrisdale said. “Globalstar’s equity is worthless. … Globalstar’s actual [mobile satellite services] business is weak and headed for default” on its loans.

Covington, Louisiana-based Globalstar’s reaction was a statement calling the Kerrisdale analysis “fundamentally flawed,” and based on “false assertions … driven solely to negatively impact Globalstar’s share price.”

Globalstar planned its own webcast after the market’s close Oct. 9 to refute the Kerrisdale analysis, and cited numerous U.S. government and industry statements testifying to the need for new spectrum.

At issue is a long-standing debate about the value of radio spectrum. Numerous companies, both those with satellite assets and those with exclusively terrestrial wireless business, have risen and crashed with investor sentiment on spectrum values.

Investors believing that the U.S. Federal Communications Commission (FCC) will permit Globalstar to use its satellite spectrum to add, through a commercial service, to the available free Wi-Fi spectrum have bid up the company’s stock in recent months.

Kerrisdale saw a short opportunity and began hinting during the week of Sept. 29 that it had found a short-seller’s dream stock. When word escaped that Globalstar was the target company, Globalstar shares trading on the New York Stock Exchange came under pressure.

After the Kerrisdale webcast Oct. 6, the shares fell again, by more than 20 percent. They recovered in early trading Oct. 7 after Globalstar announced its scheduled Oct. 9 rebuttal.

How to value spectrum is at the heart of the long U.S. Chapter 11 bankruptcy proceedings of LightSquared, which had planned to deploy, at a cost of several billion dollars, a U.S.-wide network of ground stations using satellite spectrum secured by the launch of a LightSquared satellite.

The FCC has proposed to auction a separate slice of spectrum, called AWS-3, on Nov. 13, an event that will help assess the value of this slice of spectrum but will not directly address valuations for Globalstar, LightSquared and others.

Kerrisdale’s main argument is that there is no Wi-Fi spectrum shortage in the United States or anywhere else, and that the congestion that many smartphone and laptop computer users experience in high-population areas is not proof of the contrary.

“Weak underlying internet connections, outdated technology and bad network designs are the real root causes of almost all bad WiFi and have nothing to do with a deficit of spectrum,” Kerrisdale said in its Oct. 6 presentation.

As part of a fair-disclosure requirement, Kerrisdale acknowledged that it and investors it represents “have short positions and stand to realize a gain in the event that the price of the stock declines.”

Kerrisdale said its assessment of Globalstar’s future assumes FCC approval of what Globalstar calls its Terrestrial Low-Power Service (TLPS) to sell its spectrum to network operators to increase Wi-Fi spectrum. But FCC approval will not change the basic problem that no one needs this spectrum, Kerrisdale said.

Turning to Globalstar’s existing business, Kerrisdale is pessimistic — to say the least — about the company’s ability to meet the covenant requirements of its debt, most of which has been guaranteed by the French export-credit agency, Coface.

Kerrisdale warned Globalstar investors that, sooner or later, Globalstar will be forced to raise new equity to meet its loan requirements, diluting the positions of existing investors.

“In virtually all scenarios, the combined value of the company’s unprofitable core satellite business and the potential terrestrial applications of its spectrum assets falls below its massive debt burden, making the stock a zero,” Kerrisdale said.