Loral retreats from Globalstar

(Telephony) Loral Space & Communications yesterday reported its financial results for year ended Dec. 31 and announced it would modify its involvement in satellite communications provider Globalstar.

While any additional funding has stopped, Loral will maintain its original investment in Globalstar. At the end of December, Globalstar claimed 31,200 subscribers. Bernard Schwartz, chairman and CEO of both Loral and Globalstar, originally estimated that Globalstar would have about 1 million subscribers by the end of 2000.

During a conference call, Schwartz said the decision to halt investing in Globalstar was part of Loral’s plan to improve shareholder value and get itself on a solid footing for 2001. In addition, the company wants to leverage its core competencies by concentrating on further development of satellite technologies and hardware, as well as the buildout of its fixed satellite services business.

Nothing is set in stone as to what this might mean for Globalstar, but there seems to be two schools of thought on the situation, said Greg Caressi, a research manager of the satellite communications group at Frost & Sullivan. One is that Loral is abandoning Globalstar, and the other is that Globalstar’s can restructure its debt payment plan to have enough money to survive until 2002.

“The whole point is that Loral does not want anything that happens to Globalstar to drain it anymore,” Caressi said. “This is not a symbol of Loral throwing Globalstar away. Globalstar may be in trouble in terms of its numbers and revenue, but its service and technology is up to par.”

While Loral will maintain its original investment in Globalstar, it no longer will give the venture any more money or bail it out, Caressi said. It will have to survive on its own.

“Loral’s profit from other [successful investments] have been overshadowed by Globalstar,” he said. “Now, the company is trying to re-establish its core competencies.”

There have been rumors that Loral could be a possible takeover target and that Globalstar could affect whether a deal could occur. Loral’s move also could be an appeal to other Globalstar investors to help finance the struggling satellite communications provider.

“What Loral is doing is clearing their decks,” said Andy Belt, global practice leader, strategic growth with Adventis. “They had a big investment in Globalstar, and it hasn’t panned out.”

Belt said he has heard talk about consolidation within the satellite manufacturing industry, but he does not believe a Globalstar write down will impact Loral’s ability to make a deal.

“The company is taking financial medicine that is painful, but they need to reduce the visibility of Globalstar in their financial report,” Belt said.

Time will tell why Loral made this decision.

“This is the type of situation we will sort out four months from now,” Caressi said.