Switching to Call Options on GSAT

Globalstar has not performed as I anticipated post-approval, so I sold my recently GSAT stock at $1.68, and switched to $2 April 21st call options at a cost of $0.39/share. I may purchase more longer-dated call options in the future if no catalyst occurs by April 21st. The likelihood of bankruptcy is too high for me to sit comfortably on the stock itself.

With the FCC low-band spectrum auction set to end favorably for the telecom giants within a matter of months, I would expect potential partners to start sniffing around mid-band spectrum holders. The conference call was interesting, but I think the bull valuation thesis is pricing GSAT’s spectrum far too high. Rhetoric aside, management will have to keep the lights on for the next year. They have 4 options.

  1. Dilute the common stock now
  2. Issue something that is eventually dilutive
  3. Issue more debt
  4. Sell the company

I think option 2 is potentially the most likely outcome, followed by 1, 3, and finally 4.

I do still believe the spectrum has value per my initial post. However, spectrum can lay fallow for years and GSAT is going to have to dilute or take a painful loan at some point in the future.

Options for partners probably include VZ, Softbank, DISH. Alternatively we could see some sort of merger with another one of the odd-ball spectrum firms out there like PDV Wireless or Ligado Networks.  An important question right now is why would anyone mess around with GSAT right now with other options available, especially when potential buyers or partners can force better terms in a few months?

At a time when the FCC is looking a lot more relaxed than the old Wheeler regime, GSAT seems like small potatoes for Verizon, SoftBank, or Dish. Why dink around with a $2.2b company sitting on a sliver of spectrum when you could buy DISH, TMUS, or S?

Due to the technical aspects of the spectrum, SoftBank would seem to be the most likely partner/buyer. Globalstar’s spectrum footprint aligns with what SoftBank has both inside and outside the U.S. and should be conceptually appealing to an empire builder like Masayoshi Son. So what does or does not happen here could be a telegraph for Masa’s long-term Sprint plans.

I could absolutely be wrong here, and so I view long-date call options as the best way to invest in GSAT. If the company can announce progress in the U.S. within the next couple of months I would expect the stock to go gangbusters (2-3x within 1-2 years). So I regard rolling long-dated calls as a relatively cheap and safe way to take a position until we get clarity on the real interest level from telecom giants.

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Author: secondhandstocks

The genesis for this blog stems from a Marine buddy and I came back from Afghanistan with more money than knowledge, and heedlessly tossed our hats into the stock market ring. A few months later, I remember discovering the classic book The Intelligent Investor by Graham and Dodd, and ravenously devouring my first introduction to value investing. That framework - with some generous additions by Seth Klarman, and Joel Greenblatt among others - guides my investment philosophy. I spent five years working in the intelligence field, both in the Marine Corps and then for a government agency after that. I speak Arabic and Pashto, have programming and analysis experience, and enjoy investing in technology companies as a hobby. I also spent a year on Wall Street working on a #1 Ranked Institutional Investor team, before deciding that that the Sell-Side was not for me.

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