WASHINGTON — Thermo Capital, owner of Globalstar, is merging the satellite operator with a landline company it owns in a $1.65 billion deal intended to help pay off Globalstar’s debts.
Thermo is combining Covington, Louisiana-based Globalstar with FiberLight under a single entity called Thermo Companies and injecting badly needed capital in the form of $100 million in cash and 15.5 million shares of Century Link, currently worth about $285 million.
The arrangement diversifies Globalstar’s revenue streams, which have been insufficient to cover the cost of its second-generation fleet of 24 low-Earth-orbit satellites launched between 2010 and 2013.
“This transaction brings together strategic assets that are critical to the complex needs of next-generation networks, allowing service providers to deliver the sophisticated services their customers increasingly expect,” Jay Monroe, Globalstar’s CEO and Thermo Capital’s founder and controlling shareholder, said in a statement. “The combined entity is uniquely positioned to meet a broad range of customer requirements, from low latency and high capacity networks, to consistent connectivity across large geographical areas.”
Globalstar has been seeking to leverage some of its spectrum resources to create new revenue streams through cellular services. The merger makes Globalstar one of four subsidiaries under Thermo Companies, along with FiberLight, Global SpectrumCo and Thermo Investments.
The combined company will have cash flows from satellite and fiber operations, spectrum monetization, dividend income and other Thermo Investments’ returns, Globalstar said. Thermo Companies should have an adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, at least four times higher than Globalstar by itself, according to the company.
Globalstar’s stock, initially up 5.9 percent on the news of the merger, closed this afternoon down 11 percent at 64 cents a share.
David Kagan, Globalstar’s president and chief operating officer, told SpaceNews bringing Globalstar and FiberLight together gives additional liquidity that should “put Globalstar in a better position to monetize its terrestrial spectrum and maximize opportunities for the Globalstar and FiberLight companies.”
“It’s to create a financially stable, financially sound and strong entity that has great backing in order to exploit their assets,” he said.
Kagan said there won’t be any meaningful cost synergies, but that some customer overlap exists between Globalstar and FiberLight, which should compel those customers to stay. He declined to name any of those customers.
The merger gives Monroe greater control over the companies involved, boosting his ownership from 58 percent today to between 83 and 87 percent when the deal closes. How much control Monroe will ultimately have depends on Globalstar’s share price.
Globalstar said its $1.7 billion net operating losses should enable tax-efficient growth for Thermo Companies.
Concurrent with the merger announcement, Globalstar also said it reached an agreement with the bank lenders for its satellite constellation to defer amortized payments up to $30 million annually. Globalstar as of February had $467.3 million in debt to a network of banks through the French export-credit agency Coface (now BPI France Assurance Export) to finance its constellation.
“It takes the financial instability of Globalstar out of the equation,” Kagan said.
Additionally, Globalstar said FiberLight wants to refinance a $255 million senior debt facility it has with CoBank, a move it hopes will provide additional capital to fulfill its current project backlog. FiberLight has more than 22,500 route-kilometers of fiber, providing internet services to governments and businesses in Texas, Florida the Washington D.C. area and elsewhere.
Globalstar said it expects to have a combined net debt below $200 million by the end of 2019 and an adjusted EBITDA above $165 million. The company anticipates the merger closing in the fall.