News of a possible spin-off or public offering of CyberStar was revealed in a conference call between Bernard Schwartz, chairman of Globalstar and Loral, and investors that was sponsored by the New York investment firm.
By selling all or part of its 45 percent stake in Globalstar to its shareholders, Loral would divorce itself from future losses from its investment in the company, analysts said. In 1999, Loral took a loss of $58 million in helping to launch Globalstar's 48-satellite big low Earth orbit (LEO) venture.
Loral has been under fire since slower-than-expected sales of Globalstar's satellite telephone service prompted some financial analysts to temper their bullish outlook on Loral's stock price.
"Unfortunately, Loral's stock tends to move in tandem with Globalstar's stock," Boga said. Merrill Lynch cut its long-term investment rating of Loral to an "accumulate from a buy" earlier this week.
CIBC World Markets, a global investment bank and securities brokerage, also lowered its rating of Loral stock to "hold from buy" on Thursday.
Satellite telephone meltdown
In addition to its struggle to sign on subscribers, Globalstar has faced scrutiny because of the meltdown of the mobile satellite services sector during the summer of 1999.
The first casualty was Washington, D.C.-based Iridium, which has been plagued by the technological, strategic and financial stumbles.
After filing for bankruptcy last summer, the debt-ridden mobile satellite phone company has been looking for a suitor to come to the rescue of its 66-communication satellite system. Billionaire Craig McCaw and his Eagle River investment group looked like they were going to save the day, but begged off a plan to buy them last week.
In a desperate move Monday, Iridium asked a federal bankruptcy court in Manhattan for interim financing to keep afloat as it sought out another backer. The court threw the company a lifeline and approved its request for $3 million. It's unlikely, however, that anyone will step forward in time to save the struggling company.
Two weeks after Iridium filed for bankruptcy, ICO Global Communications found itself short of cash and followed Iridium into bankruptcy court with its medium earth orbit, 12-satellite system partially constructed.
Since then, industry experts looked to Globalstar to save the mobile satellite service sector from going down in history as one of the biggest high-tech fiascoes of the 20th century,
Globalstar more savvy?
Globalstar appears to have come to the marketplace with some understanding of what befell Iridium.
The company initially pushed for an aggressive launch schedule of its satellites, but later pulled in the reins after realizing it needed more time to plan its service rollout.
In addition, Globalstar hit the market at prices well below the sticker-shocking rates first introduced by Iridium, which included calls for up to $9 a minute and giant brick-size handsets costing up to $3,500.
In the conference call with investors yesterday, Loral's Schwartz said the company is committed to reducing its $1,500 price for handsets as well as the cost of phone service.
Calls to Loral about these possible plans were not returned.
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