Profile: Bernard L. Schwartz
Chairman and CEO of Loral Space & Communications Inc.
A s both creator and destroyer, Bernard L. Schwartz has no equal in the global commercial space industry over the past 20 years.
Looking over his career — the assembly, from scratch, of defense-electronics giant Loral, the $9 billion sale of most of the company to Lockheed Martin in 1996, the remaking of Loral into a satellite manufacturer and services provider, the creation and bankruptcy of the Globalstar satellite telephone venture, the later bankruptcy and recent resuscitation of Loral — it’s easy to forget that Schwartz began his career as an accountant.
Somehow the words “accountant” and “Bernard L. Schwartz” don’t seem right together.
The 80-year-old Schwartz will be retiring from Loral on March 1. He spoke with Space News staff writer Peter B. de Selding about his recent attempts to purchase satellite-fleet operator New Skies Satellites, the Globalstar debacle and the prospects for Loral, a company he brought to life and led on a roller-coaster ride that was by turns thrilling and frightening — and never boring.
Your last big deal attempt is one that got away — the proposed purchase of New Skies Satellites of The Netherlands. SES Global won that contest for $1.16 billion including debt. Were you outbid?
This is one deal we really should have made. There are two reasons we didn’t get it. First, we got there late in the game. It was not a problem with New Skies’ shareholder: I have good relations with the Blackstone Group. I gave them my word that we could finance this project, and we could have.
We could not manage the New Skies works council [the employee representative body]. New Skies management told me it was not necessary for me to come to Holland to visit personally with the works council, that it could be done over the phone. We had a long conversation and they asked a lot of pointed questions about the leverage on our balance sheet. This is an appropriate issue for them. I think they could have gotten past this with a little time. Loral can handle the capital structure issues.
But SES Global put a deadline on their offer — a smart thing to do. Our price was about $100 million more valuable, but the works council didn’t care about that; they were worried about their job status.
SES Global would not move its deadline and New Skies had to weigh the possibilities: They could let the SES bid go away under the assumption that the issues with us could be solved, or they could take the SES offer, which was about $2 per New Skies share less than ours.
We thought the company was worth more than the SES offer, but they had a European company with all kinds of profit against our bid. In the end, as New Skies told me, a bird in the hand was worth two in the bush. Everyone acted rationally in this.
Now Loral Skynet, your satellite-fleet operating division, looks to be all alone, and small in an industry that is consolidating. Will it soon be offered for sale by Loral’s new management?
The challenge for Skynet is to grow the fleet. They should do that and I believe they will do that. We have just formalized our order of the Telstar 11N satellite, and we will be looking at ways to add to the fleet. There is a certain benefit to achieving a critical mass in this business. The financial model dictates the need to grow the fleet.
But might Loral’s new management look to monetize the asset rather than begin the long slow march to achieving critical mass?
Mickey Targoff [who becomes Loral chief executive March 1] comes out of Loral. The guys who run the division have been there awhile. The rest of the management team is still at Loral. They know what they have to do to grow the business.
A few years back you were talking to Lockheed Martin about merging Space Systems/Loral, your satellite manufacturer, with Lockheed Martin’s satellite business. Negotiations failed. Were you too greedy on terms?
No, it was not Loral’s fault. I had taken the initiative to approach both Lockheed and Boeing about such a merger. Both sets of negotiations started constructively.
When I want to talk about a merger, I don’t use bankers as intermediaries. I talk to the head of the company directly. Having purchased 30-40 companies in building Loral, I don’t think I have a reputation as someone who cannot be dealt with, or who is too stubborn.
But in this case, Lockheed wanted to hold on to its military satellite business and only put its commercial satellite division into the merger. I said that the technology is too intermixed; you can’t separate them. And if I can’t get access to the military technology, which can help the commercial side, then the logic of the merger fell away.
The business idea of putting Loral and Lockheed together in satellites would have been dynamite.
When I started talks with Boeing, it was the same problem. I came to Boeing and said, “Let’s start a new company, owned 50-50, for the entire satellite manufacturing businesses of the two companies.” It went to the Boeing board and was shot down. It wasn’t price that killed these deals. I thought then and I continue to believe today that having military and non-military satellites under the same roof is a strong business case.
Recently you have criticized Lockheed Martin and Boeing for being so transfixed by their military satellite business that they have lost ground commercially.
Look, they both have a very strong and important customer, the U.S. Department of Defense. They put their R&D resources into solving this customer’s problems. Meanwhile, we have been listening to our commercial customers’ problems. Our business thesis is different.
Look at the record over the past three years. We have a larger part of the commercial market than anyone else.
Some of those orders — from DirecTV and PanAmSat — were aided by your Chapter 11 bankruptcy status and the maneuvers of EchoStar Chairman Charlie Ergen.
That is true and I accept the assertion that we knew how to take advantage of an opportunity. I don’t mind people saying that of me.
Charlie Ergen is a very smart man and I thank him very much. He’s also a customer of ours. But you cannot say that our recent orders were due to Chapter 11 status.
But as for Boeing and Lockheed Martin, look at all military satellite programs you know about. Can you name one that hasn’t come in late and far over budget? If I came in two years late with a commercial satellite I would be out of business.
It’s hard for a company used to military contracts to act commercially. The costs, the accounting, the oversight — everything is different. And in the commercial world, there are only fixed-price contracts. Cost-plus is the norm in the military satellite business.
Let’s talk about Globalstar. Should you have known earlier that this venture’s business model was crumbling almost from the day it started commercial service in 1999 ?
I made a mistake on Globalstar. I have said that openly and sincerely. But I am not sure anyone could have seen it sooner. Look, we had partners in the telecom business — AirTouch, France Telecom, Qualcomm. These are people whose business is to know consumers.
When I went to telephone companies across the world to secure investment, I knew Loral didn’t know how to sell this to the public. That was the telephone operators’ business. Loral still does not know how to sell to the public and we are not about to get into that business.
Our biggest worry was not selling to the public, but the technology. The team we put together at Loral, with our European partners, did a beautiful job. Technically those satellites are working better than we ever dreamed.
But our telephone partners, who had the insight into the marketplace, were not selling the service. They were not offering the subsidies you have to offer in a business like this to get the business going. Loral had no right to go into these national markets and sell the service. That was the job of our partners. And they were not doing it. Meanwhile the cellular industry was rolling out everywhere.
Let’s say there were enough mistakes to be spread around to many people.
Is it fair to say that some of the Wall Street analysts who covered Globalstar and Loral were too easy on you? Some had been following you as a defense company and continued on even after you transformed the company.
I accept that as a characterization. Because of my work with Loral, I walked on water for some of these analysts. I made a mistake with Globalstar and some of them continued tossing up softballs. Some of them were lazy.
But some of them asked tough questions. I have always listened to the analysts and to the media, so maybe a little more criticism earlier would have been a service to the company.
Your shareholders in the 1980s and early 1990s made a lot of money as you grew Loral. Then Globalstar and Loral shareholders lost a lot of money in the bankruptcies. How do you weigh these things now that you’re retiring?
I think about it all the time. Frankly I feel badly about the shareholders that lost money with us. We took our responsibility to our shareholders, and to our employees, very seriously. When we sold the defense electronics business, we returned $8 billion to shareholders, something that isn’t usually done in these transactions.
When Globalstar and Loral went bankrupt, I knew we had failed our shareholders. We did our best to protect our employees, and we protected the pensions in the Loral Chapter 11 process. In my judgment there were enough assets in Loral to give the shareholders a better deal. But the Chapter 11 process favors creditors, especially those who come in at the last minute and can multiply their investment by four to five times.
I think about these Loral shareholders as much as I do those who got a good deal earlier on.