Throughout the last six months Globalstar, Inc. (NYSEMKT:GSAT) has been in the middle of a debate between long investors and short-sellers regarding the value of the company. And while short-sellers have been silent for the last couple of months, activist hedge fund Maglan Capital shared its latest views regarding Globalstar in its March investor letter. The stock of the $3.3 billion telecom company advanced by 21% in the first quarter amid the company reporting an improvement in its financial results for 2014, with revenue appreciating by 5% on the year to around $22 million and net loss narrowing to $0.50 per diluted share, from $0.96 a year earlier. Globalstar was the biggest contributor in Maglan Capital’s 4.4% return in March.
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Maglan Capital stated in its investor letter that Globalstar, Inc. (NYSEMKT:GSAT) has made “significant progress” since the beginning of the year regarding the approval of its terrestrial low-power service (TLPS) initiative by the Federal Communications Commission (FCC), which, if granted, will create many opportunities for the company, according to the investor. However, most short-sellers, including Sahm Adrangi‘s Kerrisdale Capital, consider that the TLPS initiative is actually worthless, because it will represent a channel in the 2.4GHz band that will be accessible to a limited number of users and therefore doesn’t have any commercial viability among the three unlicensed channels in the 2.4GHz band and 22 channels in the 5GHz band that already exist. As Kerrisdale stated in a report published in October 2014:
“GSAT’s TLPS concept is nothing more than the addition of one new Wi-Fi channel in the legacy 2.4GHz band – a licensed, for-profit channel that only authorized devices could use. In a world that already has three free, unlicensed channels in the 2.4GHz band and an additional 22 in the 5GHz band, the notion that one more channel, hypothetically accessible to only a circumscribed subset of users, could be worth many billions of dollars has elicited chuckles of ridicule and disbelief from every Wi-Fi engineer we could find.”
Yet Maglan considers that the approval of TLPS is only a matter of time and once the process is completed, Globalstar, Inc. (NYSEMKT:GSAT) will initiate discussions with licensees, joint-venture partners and buyers, with potential counter-parties being AT&T Inc. (NYSE:T), Comcast Corporation (NASDAQ:CMCSA), Cablevision Systems Corporation (NYSE:CVC), Apple Inc. (NASDAQ:AAPL), Google Inc (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), and others. “Those opportunities could yield incredible value for Globalstar,” Maglan added.
One of the main arguments made by Globalstar in favor of its TLPS initiative is the fact that it might help to solve problems concerning Wi-Fi congestion. However, the counterargument is that given the large number of channels, the Wi-Fi congestion is not a problem, as evidenced by the strong connection observed during major events such as the Super Bowl and Apple’s WWDC conference. On the other hand, there haven’t been any recent testing results for Globalstar, Inc. (NYSEMKT:GSAT)’s TLPS system.
Until the TLPS system receives approval from the FCC, the statements of both types of investors (long and short) are mere speculation. Both groups have their own agendas, which they try to pursue. Maglan has a long position in Globalstar, Inc. (NYSEMKT:GSAT), so it is betting on the company’s growth, therefore it is interested in the positive aspects that TLPS might provide for the company. On the other hand, Kerrisdale has been mostly bashing on GSAT throughout the fourth quarter of 2014. Moreover, something interesting appears when we look at its two latest 13F filings. In the 13F for the end of the third quarter, the fund reported a big position of put options underlying around 1.99 million shares of Globalstar, but the next 13F filing (for the end of 2014) shows that the position was closed, with the options being exercised or expiring. Meanwhile, during the October-December period, the stock of Globalstar lost nearly 25% amid an inflow of comments and letters issued by Kerrisdale, the last of which was on December 8 according to its website.
On the other hand, Globalstar, Inc. (NYSEMKT:GSAT) has remained mostly silent throughout the fourth quarter, which should also raise some questions regarding the self-assurance of its management regarding the prospects of the company. The only comment issued by Globalstar was a short statement in response to Kerrisdale’s huge, 64-page report that claimed that the company was actually worth nothing. That statement actually failed to disprove almost anything mentioned in the report, mainly attacking Kerrisdale as a short-seller instead.
The short interest in Globalstar is not very large, as many investors probably took the opportunity to make some money during the fourth quarter. Many investors aside from Kerrisdale unloaded their positions in ‘Put’ options during the fourth quarter. Long interest also slightly declined as data from Insider Monkey shows. At the end of December, a total of 26 funds (among over 700 that we track) reported long positions, versus 32 funds a quarter earlier. James Dinan’s York Capital Management is the largest shareholder with 33.26 million shares, although the stake amasses less than 1% of its equity portfolio (see York Capital’s portfolio). In terms of portfolio allocation, the largest position is owned by Kieran Goodwin‘s Panning Capital Management, which disclosed ownership of 11.51 million shares, the stake being the third-largest in its equity portfolio.
Therefore, the fate of Globalstar, Inc. (NYSEMKT:GSAT) and the earnings of investors are in the hands of the FCC. After TLPS is approved, the company will get a chance either to prove short-sellers wrong regarding its potential, or significantly disappoint those that have been bullish.
Disclosure: None
