Harbinger Sells Half its Stake in Inmarsat for $649 Million

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PARIS — The hedge fund that has promised U.S. regulators it will deploy a multibillion-dollar hybrid satellite-terrestrial wireless broadband network in the United States on Oct. 5 said it has sold half its shareholding in mobile satellite services provider Inmarsat and is no longer interested in purchasing the London-based operator.

Harbinger Capital Partners, whose LightSquared company is under a tight deadline to meet its commitments to the U.S. Federal Communications Commission (FCC), said it sold 65 million Inmarsat shares — 14.1 percent of Inmarsat’s share capital — to unidentified buyers but is in no rush to sell the rest of its Inmarsat holdings.

New York-based Harbinger said the transaction was concluded at a price of 6.3 British pounds per share, generating gross proceeds of 410 million pounds ($648.6 million). UBS and Credit Suisse handled the sale for Harbinger. Harbinger’s remaining 14 percent Inmarsat stake is subject to a six-month lockup, meaning Harbinger cannot dispose of it until April at the earliest, under the terms of the transaction.

“Inmarsat has been a terrific investment for Harbinger and its investors,” Harbinger Chief Executive Officer Philip A. Falcone said in an Oct. 4 statement. “Although we have determined that we are not going to make an offer for all of the company, I remain a strong believer in Inmarsat’s future and am extremely happy to maintain a core position in the company’s stock and our partnership with Inmarsat through LightSquared Inc.”

New York-based Harbinger did not link the sale of its Inmarsat stake with the deployment of the LightSquared network, but proceeds from the sale of Inmarsat stock presumably will be used to fund development of LightSquared, which has yet to announce any major outside equity investment.

LightSquared on Oct. 3 nonetheless said it was speeding up an agreement with Inmarsat that calls for LightSquared to pay the London-based satellite operator $115 million per year for use of Inmarsat spectrum in addition to a one-time $337.5 million payment over 18 months that LightSquared began paying in August.

In that sense, Harbinger is reducing its equity ownership of Inmarsat only to turn around and pay the satellite operator hundreds of millions of dollars in cash.

Under a December 2007 contract, LightSquared owes Inmarsat $337.5 million over the next 18 months to finance Inmarsat modifications to its ground network that will permit LightSquared’s service to reach its full potential.

As part of what the two companies call their Phase 2 contract, LightSquared has agreed to pay Inmarsat $115 million per year if it elects to use some of Inmarsat’s L-band radio spectrum in North America. This annual payment apparently has no end date as long as LightSquared wishes to use Inmarsat’s spectrum.

LightSquared officials in the past have said they would not trigger Phase 2 until the project had lined up distribution partners that agree to help finance the deployment of the system, which uses a series of terrestrial signal transmitters known as an Ancillary Terrestrial Component (ATC) alongside the mobile satellite links.

LightSquared announced Oct. 3 that it had closed a four-year, $850 million debt facility with UBS AG to help fund system development.

With the UBS-provided financing, LightSquared said it has secured more than $2 billion in equity and debt, and future commitments.

In an Oct. 3 statement, LightSquared Chief Executive Sanjiv Ahuja said the UBS loan “endorses our overall business model, while providing LightSquared with a solid step forward to execute our strategy and begin building out our 4G-LTE-wholesale network.”

LightSquared said it has already signed wholesale distribution agreements “and is in advanced negotiations with numerous potential partners.” It said this backing has enabled the company to accelerate its planned implementation of the Phase 2 agreement, which now will take effect by the end of the year.

LightSquared and Harbinger have promised the FCC to deploy the thousands of ATC towers combined with the satellite service fast enough to cover 100 million Americans by December 2012, and 260 million by the end of 2016. It previously announced that Nokia Siemens will build and install some 36,000 ATC stations under an eight-year, $7 billion contract.

The first of two planned L-band mobile communications satellites being built for LightSquared/Harbinger is scheduled for launch in the coming weeks aboard an International Launch Services Proton-M rocket.

Industry officials have speculated for months over how far Harbinger would go in its LightSquared support in the absence of large co-investors. While the company may have an interest in slowing down development until it lines up strategic partners, its FCC commitment forces it to move quickly.

The U.S. regulator in September demonstrated that, despite its years-long promotion of ATC-satellite projects, it will demand that some deadlines are respected. The FCC denied a deadline extension request by mobile satellite services operator Globalstar of Milpitas, Calif., whose second-generation satellite constellation will not be fully operational before late 2011.

The FCC decision will have an immediate revenue impact on Globalstar by suspending, as of mid-November, the use of Globalstar spectrum for an ATC network built by Open Range Communications of Greenwood Village, Colo.

Frank Boulben, LightSquared’s chief marketing officer, said Oct. 4 that the company is in advanced negotiations with a dozen partners — “we are exchanging term sheets with them” — and has signed up others, but has been forbidden from naming them.

“I have pushed our partners for permission to disclose their identities, but it is customary in a competitive industry not to show your strategy too far in advance,” Boulben said in an interview. He said LightSquared had intended to exercise its Phase 2 Inmarsat agreement in mid-2011, but pushed up the date when it became clear that distributors and other partners wanted a service start as soon as possible.

“The level of demand came as a surprise to us,” Boulben said. “Given this traction, we decided to move up the Phase 2 execution.”