A new investor is recognizing the value of the Globalstar handheld satellite phone service. The investor, New Valley Corp. [NVAL], is preparing to pump money into the financially struggling operation. Now the question is whether Globalstar can be managed to turn a profit for the first time.

New Valley, a Miami-based investment firm that focuses on the real estate business, appears confident enough to give Globalstar much-needed debtor-in-possession (DIP) financing as the first step toward assuming majority ownership of a reorganized Globalstar. If the offer were to be approved by the U.S. Bankruptcy Court in Delaware, New Valley would provide $55 million in financing to help the company emerge from bankruptcy.

“Any investor would have to look across the sky to Globalstar’s competitors when making a commitment to Globalstar,” said Jimmy Schaeffler, a satellite analyst who heads The Carmel Group. “Based upon the performance of those competitors, I believe an investor would be wise to remain risk-averse. These types of systems still seem too early for their audience. A little more than 80,000 Globalstar subscribers in the past three or four years, from a potential audience of billions, leaves something to be desired.”

Globalstar now seems positioned to follow rival Iridium LLC out of bankruptcy protection, without the albatross of billions of dollars in debt that plagued both systems. Iridium emerged from bankruptcy court protection in December 2000 after an investment group bought the assets for $25 million.

Under the terms of the Globalstar purchase and reorganization plan, New Valley would become majority owner of a new Globalstar company, with the remainder of the equity held by the company’s existing creditors. Those creditors include Loral Space & Communications [LOR], Qualcomm Inc. [QCOM] and holders of Globalstar L.P. bonds.

However, bankruptcy court approval is not certain.

A hearing to obtain court approval is scheduled for Jan. 30. No assurance can be given that the approval of the court will be obtained, New Valley reported in an 8-K filing to the Securities and Exchange Commission (SEC).

Globalstar and its subsidiaries would transfer virtually all of their assets, “free and clear of liens and claims,” to a newly formed Delaware corporation, New Globalstar, according to a copy of the investment agreement obtained by SATELLITE NEWS.

New Valley would pay the $55 million it committed to purchase 5.5 million shares of New Globalstar’s common stock. That stock would give New Valley controlling interest in New Globalstar with 80.1 percent ownership.

Upon approval by the bankruptcy court, New Valley would provide DIP financing of $20 million to carry Globalstar through Chapter 11 bankruptcy proceedings and the Federal Communications Commission (FCC) approval process. The agreement then calls for New Valley to provide an additional $35 million at the conclusion of the restructuring later this year. Once the bankruptcy court approves the DIP financing agreement, Globalstar and its creditors committee would not be able to seek or accept a better offer.

According to SEC documents filed by New Valley, the investment firm had participated in the satellite business during the 1980s when it owned Western Union’s former satellite business before selling it in 1989.

Globalstar is “best positioned” to meet the increasing demand for low-cost mobile satellite telephony, data collection and Internet communications, said Bennett LeBow, chairman and chief executive officer of New Valley. The investment in Globalstar should allow it to further expand its growing customer base and progress toward profitability, he added.

The DIP financing would give Globalstar the resources to strengthen its service and broaden its portfolio of voice and data products, said Olof Lundberg, Globalstar’s chairman and chief executive officer.

Globalstar has maintained and expanded its service for most customers with virtually no interruptions during the restructuring, Lundberg said. Plans are in place to add still more products and features, he said.

Currently, Globalstar serves 83,000 subscribers in more than 100 countries. The company also has achieved “substantial progress” in implementing a new business plan that includes the introduction of lower prices in North America, company officials said. The plan also includes the consolidation of sales and technical operations in the United States, Canada, the Caribbean and parts of Europe. Further, Globalstar has established a new marketing and sales structure aimed at targeting specific vertical industries.

New financing would let Globalstar augment its marketing and sales efforts, company officials said. A reorganized Globalstar would retain ownership of existing sales and technical operations in North America and Europe, as well as finalize new business agreements with its service provider partners elsewhere in the world.

Globalstar officials expressed interest in speeding new product development and service offerings in the months ahead. That effort would include next-generation products for maritime, aviation and other specialized markets, Globalstar officials said.

The company also offers multi-channel capabilities and CDMA signals as “technical strengths” that could be tapped to improve Globalstar’s coverage and service quality, its officials said.

Globalstar creditors would receive preferred shares in the new company, along with warrants to buy additional equity, according to the investment agreement. –Paul Dykewicz