Globalstar Inc. (GSAT:US), the provider of satellite-phone services that’s traded (GSAT:US) below $1 since 2011, now offers investors the chance for returns of at least 30 percent in a takeover thanks to its coveted airwaves.
Globalstar surged by the most in more than four years after the U.S. Federal Communications Commission last week moved a step closer to deciding whether the company can use some of its satellite airwaves to run land-based wireless networks. A ruling in Globalstar’s favor would increase the value of the spectrum and could spur cable operators or phone carriers to try to acquire the whole company, said Falcon Point Capital LLC.
While the unprofitable company has struggled under its debt (GSAT:US) load, Globalstar could join Leap Wireless International Inc. (LEAP:US) and MetroPCS Communications Inc. on the list of companies acquired in the last year for their spectrum. Wireless carriers are seeking to bolster their networks to meet demand for mobile data, which could help the $475 million company fetch a premium of at least 30 percent, according to IPOPlaybook.com. Amazon.com Inc. (AMZN:US), which used Globalstar’s airwaves to test a new wireless network, also may be a buyer, Stifel Financial Corp. said.
“If they are looking to convert to terrestrial wireless spectrum, that would probably boost the value a lot,” said Tom Taulli, who analyzes acquisitions for Los Angeles-based IPOPlaybook.com. “All the carriers are looking to get spectrum.”
Globalstar, based in Covington, Louisiana, offers satellite-phone and global positioning system locator services in more than 120 countries, including rural and remote areas. The company serves consumers as well as businesses involved in industries such as mining, oil and gas, forestry and commercial fishing.
Since completing its initial public offering at $17 a share in November 2006, the company has slumped to a penny stock after posting net losses (GSAT:US) and borrowing to upgrade its satellite system. As of June, its total debt (GSAT:US) of $713 million exceeded its market value, according to data compiled by Bloomberg.
After delays in deploying new equipment, Globalstar this year finished the launch of its new fleet of satellites, improving its ability to compete for subscribers with rivals such as Iridium Communications Inc. Globalstar, whose predecessor company filed for bankruptcy protection in 2002, also took steps to restructure its debt this year, easing investor concerns about repayment.
“The company has been hurting for the last six years, and now they seem to be rebounding,” Claude Rousseau, a senior analyst at Northern Sky Research LLC, said in a phone interview. “They seem to have turned the corner in terms of technical issues.”
Along with its efforts to improve its core business, Globalstar is seeking regulatory approval to convert some of its satellite spectrum for terrestrial use, in Wi-Fi and cellular networks. The move would make the spectrum more valuable, as it could be deployed with networking equipment that’s cheaper than satellites, and work with most mobile devices.
Initially, the company has said it wants to use the spectrum for a Wi-Fi service that could potentially help carriers offload traffic from their mobile networks to ease congestion. Globalstar also eventually wants to use the airwaves to run a type of network technology known as long-term evolution, or LTE.
The stock (GSAT:US) surged 28 percent on Sept. 9 after Globalstar said the FCC circulated the company’s proposal among its commissioners -- a step toward a review by the commission, which meets again on Sept. 26. While the company requested approval to use its spectrum for both Wi-Fi and LTE networks, it’s up to the U.S. agency to allow both land-based uses.
“We are confident that we will receive FCC authority to utilize our spectrum for terrestrial mobile broadband services” including the opportunity for Wi-Fi, Barbee Ponder, Globalstar’s general counsel and vice president regulatory affairs, said in an e-mail response to questions. Globalstar is in preliminary discussions with companies interested in using its spectrum for Wi-Fi and believes “those discussions will move to the next level once the FCC issues its proposed rule.”
Ponder declined to comment regarding the potential for Globalstar to be acquired.
The approval process could extend into next year, Christopher King and David Kaut, analysts at Stifel, wrote in a Sept. 9 note.
FCC approval would “certainly improve the valuation significantly,” King said in a phone interview.
Today, Globalstar shares rose 7 percent to 94 cents at 9:51 a.m. New York time.
While some analysts said Globalstar could court buyers for just the spectrum or lease the airwaves to wireless providers, King said suitors could seek a full takeover.
“You could have a buyer come in and buy the entire company for the spectrum,” he said.
Globalstar could attract buyers such as cable and phone companies, which are always searching for additional airwaves to meet surging demand for their networks, said Michael Mahoney, senior managing director at Falcon Point in San Francisco. U.S. mobile data traffic is forecast to rise ninefold from 2012 through 2017, according to Cisco Systems Inc.
“A repurposing toward Wi-Fi is probably value-enhancing,” Mahoney said in a phone interview. “The world is moving to greater mobility, and Wi-Fi is how we get there.”
With approval to also run LTE networks over the spectrum, “that’s hugely valuable,” Mahoney said.
Much of the recent consolidation among U.S. wireless companies has involved spectrum assets. In May, Deutsche Telekom AG completed the deal to combine MetroPCS with its T-Mobile division. In July, AT&T Inc. agreed to buy Leap and acquire customers and airwaves to improve its network, while Sprint Nextel Corp. bought the rest of Clearwire Corp. for its valuable spectrum.
“All of the major wireless service providers are interested in additional spectrum,” Dave Heger, a St. Louis-based analyst at Edward Jones & Co., said in a phone interview.
Amazon, the world’s largest e-commerce company, also could pursue Globalstar, Stifel’s King said. The Seattle-based company has tested a new wireless network using Globalstar’s spectrum in Cupertino, California, people with knowledge of the matter told Bloomberg in August.
Mary Osako, a spokeswoman at Amazon, said the $136 billion company doesn’t comment on speculation.
While an FCC ruling against Globalstar would make the spectrum less attractive and damp interest in the company from wireless providers, its low valuation could attract buyers even without the approval, Marco Rodriguez, a Dallas-based analyst at Stonegate, said in a phone interview. Rodriguez values the company at a minimum of $1.08 a share based on the sum of its parts, compared with its closing level last week of 88 cents.
If the FCC does rule in favor of Globalstar’s spectrum request, the company could command a takeover premium of 30 percent to 40 percent, IPOPlaybook.com’s Taulli said in an e-mail. That would equate to as much as $1.23 a share. Falcon Point’s Mahoney said the price to acquire the airwaves could be even higher.
“If a company that’s spectrum-poor wants to offer a robust Wi-Fi service, it’s not inconceivable they’d pay a 100 percent premium,” Mahoney said.
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