San Jose, Calif.-based Globalstar’s emergence from Chapter 11 protection last week offers new promise for the once debt-laden company to unlock the full value of its satellite- phone technology to create a profitable business.

Part of the optimism stems from the commitment Globalstar has from its new controlling shareholder, Thermo Capital Partners, a private equity company that offers hands-on management attention and sizable financial resources to its assorted investments.

Thermo Capital, co-headquartered in New Orleans and Denver, formally acquired the main business operations and assets of Globalstar last Thursday, and it quickly announced the business-building initiatives aimed at ensuring the satellite communications service’s long-term financial stability, fueling its growth, and expanding into homeland security and other new vertical markets.

Thermo Capital acquired 81.25 percent of the newly formed Globalstar company in exchange for an investment of $43 million. The remaining 18.75 percent of Globalstar’s equity goes to the creditors of the original company, called Globalstar L.P.

Qualcomm [QCOM], a bondholder in the original Globalstar, will hold more than a 6-percent interest in the new company, said Jim Lynch, a managing director at Thermo Capital, who added officials from the San Diego-based wireless services company were helpful in the transaction process.

As a private investment group with more than 20 years of experience, Thermo Capital has managed, developed and turned around businesses involved in telecommunications, energy, real estate and other industries. Although Thermo Partners typically takes a direct role in providing management assistance with its ventures, Globalstar President Tony Navarra will remain at his post.

Thermo Capital’s top officials said in a conference call Thursday their firm takes a long-term approach to investing that involves buying and holding companies with high potential. In contrast, venture-capital funds tend look to for their investments to pay off handsomely within three to five years before selling. Thermo Capital’s differing strategy is reflected by its plan to fund the completion of the construction and the launch of eight new satellites to enhance the system as soon as late 2005 or 2006. The revamped Globalstar also would open a new Florida gateway to enhance its Caribbean service. In addition, it is preparing to introduce upgraded products and services to expand its data capabilities and to establish a new gateway in Alaska to support cargo and fishing vessels.

The now debt-free Globalstar’s emergence from bankruptcy is “unquestionably” a major turning point for the company, Lynch said. The company is in its fifth year of commercial service, and it will have access to Thermo Capital’s $250 million in available funding for further investments in new opportunities, if circumstances warrant.

The Right Moves

Hoyt Davidson, a principal with Near Earth LLC, a New Canaan, Conn.-based boutique investment banking firm, said it looks as though Globalstar’s new owners are doing “all of the right things” to maximize their chances of earning a decent return on their investment.

However, the more than $4 billion spent by Globalstar’s original investors to build and deploy a satellite voice and data service clearly did not pay off. The company never was able to come close to supporting its massive debt load.

“Without borrowing that much, these assets would not be in the air,” Lynch countered. The technology works well and provides an opportunity for Thermo Capital and Globalstar’s minority shareholders to reap the benefits now that the service is virtually debt-free following the completion of a restructuring last week.

Investors who own shares of the failed predecessor company, Globalstar Telecommunications Limited (GTL), likely will find their holdings worthless upon completion of the bankruptcy process, according to a Globalstar announcement last Thursday. Dissolution of GTL is expected at some point and almost assuredly would cancel those shares and leave them with no value.

Thermo Capital entered into a preliminary agreement in December 2003 to acquire Globalstar upon satisfaction of certain conditions that included regulatory approval, and the successful completion of several settlement and technical agreements. A U.S. bankruptcy court approved the last of the required agreements March 31, allowing Thermo to conclude the acquisition last week. In addition, the Federal Communications Commission (FCC) formally approved transfer of Globalstar’s operating licenses and regulatory authorizations to the new Globalstar operating company March 11.

The acquisition process centered on the establishment of a new Globalstar company that subsequently assumed ownership of essentially all of the assets and business operations formerly owned by GLP. Employees of GLP and its worldwide subsidiaries have also been transferred to the new company. As a result, GLP no longer has any significant operations and is to be wound up in the weeks ahead.

70-Percent Growth

Plans for the restructured Globalstar are ambitious. Globalstar is expected to record at least 70-percent year-over-year growth in 2004, and to turn an operating profit by the fourth quarter. Globalstar generated top-line revenue of $55 million during the past 12 months, and it is expected to produce $85 million in revenues this year, based on the company’s current growth trajectory, Lynch said. Indeed, Globalstar has almost tripled its subscriber base to 110,000 from 36,000 since filing for bankruptcy protection Feb. 15, 2002, Navarra said during the conference call. “If we can triple our subscriber numbers while in bankruptcy, imagine what we can do” after clearing that hurdle, Navarra added.

“We are now here to stay with a great future, including new and enhanced operations with follow-on satellites,” Lynch said. Globalstar also has loyal customers and dealers who continue to have “faith with us,” he added.

To expand its customer base further, Globalstar’s planned gateway in Florida will be constructed later this year at a cost of several million dollars. That proposed expansion follows the company’s previous decision to add a fourth antenna at its gateway at Las Palmas, Puerto Rico. Together, these two programs will provide higher-quality coverage and greater system capacity across the Caribbean, where Globalstar service has found a growing subscriber base.

On the new-product front, Globalstar will resume or speed up several development programs that had been slowed or suspended during the company’s restructuring. Globalstar expects the first new product – a fax machine – to be introduced commercially later this month. In addition, new phones that are smaller, lighter and more capable also are on the horizon, Lynch said.

The data service Globalstar offers also would be improved to build on the company’s existing system and technology while tailoring services for such vertical markets as maritime, defense, and oil and gas extraction. At the same time, new compressed data services are under development and scheduled for commercial launch soon.

“In the weeks ahead, we will be launching an advertising campaign,” Lynch said. “We think data service is a hidden value in the company.”

Globalstar’s new Alaska gateway is intended to serve virtually the entire state as well as offshore regions in the North Pacific and the Bering Strait, where the commercial maritime sector has shown strong interest in the company’s service.

The overall management of Globalstar will focus on re-aligning the company’s resources to bring greater emphasis on addressing customer needs, especially in its core markets. The company, which has 200 employees, recently added key sales and marketing members, and it will hire additional professionals to further augment its sales efforts. –Paul Dykewicz

(Jim Lynch, Thermo Capital Partners, 914/576-7357; Mac Jeffery, Globalstar, 408/933-4434; Hoyt Davidson, Near Earth, 203/972-9062)