Shares of Globalstar Inc. (NYSEMKT:GSAT) went on a roller coaster ride this morning. The satellite communications specialist's stock bottomed out in a 16% drop just after 10 a.m. EDT, recovering to a less dramatic 7% decline an hour later. The company is the target of a complicated merger deal today, and investors on the open market are not loving the idea.
Globalstar CEO and chairman Jay Monroe is consolidating his business empire here. Monroe is also the CEO and majority shareholder of investment firm The Thermo Companies, which is stepping in to take over Globalstar here in a deal worth $1.65 billion. The merger will fortify Globalstar's struggling core business by combining it with regional fiber network FiberLight and injecting some fresh capital into its balance sheet. The resulting company, which will be known as Thermo Companies but should continue to trade under Globalstar's GSAT ticker until further notice, will gain a $100 million cash boost along with 15.5 million shares of CenturyLink (NYSE:CTL), currently worth about $280 million.
This deal should throw Globalstar a much-needed lifeline since the company is burning $67 million a year and already carries a crushing debt load of $514 million, against just $42 million in cash equivalents. I wouldn't worry about investors turning down the deal since Monroe holds a controlling 58% ownership stake and basically gets to decide what's next. When the Thermo Companies merger is completed, Monroe's total ownership in the resulting company will rise to at least 83%.
Globalstar is still searching in vain for a partner with which it could launch a next-generation terrestrial network using its portfolio of repurposed satellite-grade radio spectrum licenses. FiberLink doesn't have the nationwide scale required to make Globalstar's wireless network dreams economically viable.
So the beat goes on, and not much is changing other than the fact that Globalstar looks more likely to survive for a couple more years this way. Investors not named Jay Monroe are more frustrated than relieved by this announcement -- and for good reason.