Globalstar Stock-shorter’s Condemnations Provoke Feisty Rebuttal

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PARIS — Mobile satellite services provider Globalstar, whose stock had risen sharply in recent months as investors bought into the idea that its satellite spectrum could be used to provide a terrestrial Wi-Fi service, found itself on the ropes the week of Oct. 6 as a short-seller investor said Globalstar is dead on its feet.

In dueling conference calls, Kerrisdale Capital Management of New York, which disclosed it had made a big bet against Globalstar’s shares, and Covington, Louisiana-based Globalstar sought to enlist investor sentiment.

Globalstar Chief Executive Jay Monroe, whose Thermo group of companies has invested more than $600 million in Globalstar, said he stands ready to make further investments, especially given the 40 percent fall in the stock price following the Kerrisdale webcast. Thermo “has not sold a single share” since investing in Globalstar, Monroe said.

Kerrisdale’s Oct. 6 conference call followed several days of rumors that the investment fund was shorting Globalstar. When it went public with its investment thesis — that Globalstar is hugely overvalued — Kerrisdale said Globalstar’s stock is “worthless” and that the company is headed for a default on its loans.

Globalstar’s Oct. 9 rebuttal focused on the company’s plans, subject to U.S. Federal Communications Commission approval, to offer a paid Wi-Fi service using radio spectrum already assigned to Globalstar worldwide for its low-orbiting satellite constellation.

Globalstar’s Terrestrial Low-Power Service (TLPS) is intended to provide secure, carrier-grade Wi-Fi spectrum on the assumption that the existing spectrum is becoming too crowded. Kerrisdale disputes this, and said Wi-Fi congestion is not a matter of spectrum availability.

“Weak underlying Internet connections, outdated technology and bad network designs are the real root causes of almost all bad Wi-Fi and have nothing to do with a deficit of spectrum,” Kerrisdale said in its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

On the Globalstar call, John Dooley, a founder of Jarvinian Advisors of Boston who is described as the inventor of TLPS, and who is advising Globalstar, said Kerrisdale misunderstands spectrum.

Specifically, Dooley said Kerrisdale did not understand the physics of spectrum allocation and the relative merits of the 2.4-gigahertz spectrum used by current Wi-Fi and proposed for Globalstar’s TLPS; and the 5-gigahertz spectrum Kerrisdale said would relieve any Wi-Fi congestion.

In addition to the advantages of the 2.4-gigahertz spectrum for Wi-Fi, Dooley said the fact that Globalstar’s satellite system has been given a spectrum allocation by global regulators means Globalstar’s future TLPS partners will be under no deadline to deploy their networks. They can invest in the ground infrastructure at their own pace.

Kerrisdale is equally negative about Globalstar’s core existing satellite business and the company’s ability to meet the covenant requirements of its existing debt, much of it guaranteed by the French export-credit agency, Coface.

Sooner or later, Kerrisdale said, Globalstar will be forced to raise new equity to meet its debt obligations, diluting the current stock investors.

Asked if he would be purchasing Globalstar stock now that it has dropped under the Kerrisdale pressure, Monroe said he is restricted from purchasing new shares for the moment as Globalstar prepares its quarterly earnings report. Once the restriction is lifted, he said, “I wouldn’t be at all surprised to see Thermo buying an additional position.”

“We have bought the stock aggressively at every dip,” Monroe said. “We are precluded from doing so now because Globalstar is in a blackout period before the end of the quarter. That is a problem for me because I would like nothing more than to buy as much Globalstar stock as I could.”

As to Kerrisdale’s allegation that Globalstar will not be able to meet its loan covenants, Monroe said the company has “consistently exceeded our financial covenants and we have retained as a feature of our loan agreements unlimited cures that are nonmaterial in size.”

Monroe bristled at Kerrisdale’s reference to Globalstar competitor Iridium Communications, which has raised new equity recently to help finance its second-generation constellation. Globalstar’s second-generation system is already in orbit.

Monroe said the U.S. Federal Communications Commission is expected to issue a license ruling by the end of the year on Globalstar’s TLPS proposal.