WASHINGTON --
Globalstar Telecommunications got a much-needed cash infusion this week from Bear Stearns when the securities firm agreed to buy as much as $105 million in Globalstar ‘s common stock to sell to the public.
Bear Stearns’ agreement to buy the stock means that, under current cash-flow prognostications,
Globalstar [GSTRF] has enough liquidity to operate past March 2001.
Globalstar, which has been plagued by slow subscriber growth and poor cash flow, recently drew down a $250 million bank loan in order to eke out an extra six months to make it to March.
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"This gives us a margin of healthy liquidity," Globalstar spokesman Mac Jeffery said. "In a perfect world we would have the money, but we accept that we need more."
Chief Executive Bernard Schwartz said in July that Globalstar's partners are committed to the company and will invest more money if necessary.
Globalstar, which is backed by
Loral Space Communications [LOR], will use the proceeds from the sale of the stock for capital expenditures, marketing, operations and distribution of phones and services.
Bear Stearns said it will buy the shares to sell in the open market based on market conditions.
Bear Stearns plans "do not preclude other options for raising cash," Globalstar’s Jeffery said. "We may approach other existing partners."
Globalstar’s largest partners include
Qualcomm [QCOM], along with Loral Space and Lockheed Martin [LMT]. In the past, all three have guaranteed a credit facility for the cash-strapped company.
Analysts were upbeat about the news, saying that it showed a vote of confidence in Globalstar’s future.
"Globalstar is a good example of how to fund a system," said telecommunications analyst Greg Caressi at Frost & Sullivan in Silicon Valley, California.
But what worries most analysts is not Globalstar’s business plan as much as the perception problem that permeates the market for
mobile satellite services (MSS).
The failure of the $5 billion Iridium system has cast a pall over the entire industry, raising doubts about the prospects for other MSS companies.
ICO Global also added to the perception problem when it went bankrupt in August 1999. It was rescued this summer, however, by telecommunications pioneer Craig McCaw.
And, last week, following a spate of financial blunders, Orbcomm Global announced that it filed for Chapter 11-bankruptcy protection to help restructure its business.
"Given what happened to Orbcomm last week, it will be interesting to see how the market receives [Globalstar] stock," Caressi said. "Perception is going to affect their reality of market penetration."
Globalstar reported 13,000 customers and $708,000 in revenue as of July.
Another sign that Globalstar’s prospects are improving is a flurry of stock purchases by insiders who, since March, purchased as many as 119,000 shares in the company. Chief Bernard Schwartz accounted for 100,000 of the shares.
On Tuesday, its shares fell 81 cents to $11.19 on the Nasdaq. The shares have fallen 75 percent this year. Loral rose 94 cents to 6.94 on the New York Stock Exchange.
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