By Pete Gallo
Forget the New York Times. Harbinger Capital Partners has finalized the takeover of a company whose technology actually could cover the globe—the satellite and data corporation SkyTerra Communications.
As of late March, Harbinger was the largest shareholder in the Reston, Virginia, company. If you aren’t a techie, you’ve likely never heard of the formerly over-the-counter stock, with a market cap of under $1 billion. But it has been a solid performer, trading right before the deal closed at $5 per share, up from $2.25 a year ago.
But it’s too late to add SkyTerra to your portfolio. On March 29, Harbinger completed its all-cash acquisition of the company for $262.5 million with Harbinger founder Phil Falcone and other fund executives directly taking the helm of the board, according to an 8-K filed with the Securities and Exchange Commission.
At $5 per share, Harbinger paid roughly a 56% premium over share prices when the acquisition deal was announced on September 23, 2009.
But that’s the past. The future? The acquisition and privatization puts Harbinger in an interesting spot in the growing mobile data game, the purported future of the information technology world that stands in strong contrast to the old leaders in the information and news business such as the New York Times, in which Falcone has been unloading a controversial and unprofitable stake for some time.
Some investors may have miscategorized SkyTerra as a minor mobile phone and satellite play, but Harbinger saw that the company’s real upside was in the data transmission and networking business, where SkyTerra has a 13-year track record providing services for government and enterprise clients.
That’s Harbinger’s clever portfolio move. This doesn’t seem to be a quick buy and flip. SkyTerra may serve as a cornerstone for a larger global LTE data network. LTE stands for Long Term Evolution, a mobile communications standard used for so-called 3G (third-generation) phones and mobile computing devices as well as proposed 4G devices.
What’s more, SkyTerra has the right friends and regulatory beachheads to secure further market share.
Prior to the Harbinger buyout, the company on March 10 announced its new software that would serve primarily government transportation and public safety agencies in the United States and Canada, including homeland security agencies, based on SEC filings. This includes solutions for tracking government and commercial transportation.
Bigger plans are already on the table. As head of the SkyTerra board, Falcone, along with Harbinger-appointed executives, will continue the company’s existing negotiations with government regulators aimed at expanding SkyTerra’s usage of the available communications spectrum. Prior to the acquisition, the company had added two new trial markets, Phoenix and Denver, and it aims to add 36,000 terrestrial base stations to serve some 40 million customers by 2015, according to filings.
But are Falcone and Harbinger prepared to see this strategy through? The hedge fund’s acquisition deal drew fire from AT&T and Verizon, both of which criticized the Federal Communications Commission and claimed the buyout deal may be unlawful in that it effectively inhibits the ability of other communications players such as themselves to commercially lease airwaves.
No doubt having a substantial base of government clients may help a Harbinger-owned SkyTerra stave off such a regulatory turf war over bandwidth. A Harbinger filing with the FCC suggested the deal would add greater competition, helping retail customers and “enabling competitive carriers and new entrants to enjoy a level playing field in network performance and economics.”
With Harbinger having just won its bid and received regulatory approval for the takeover, it may be too soon to speculate about its exit strategy. For the moment, Harbinger seems to have gobbled up a company with strong short- and long-term growth prospects with the proper strategic and regulatory positioning to execute on its plan. Why hurry to sell it?
Harbinger has shown great interest in the wireless communications sector. In September, it took a 25% stake in Augere Holdings, which in 2009 launched Internet and broadband services in Bangladesh and Pakistan. Harbinger’s $50 million private equity investment was directly tied to the firm’s investment in WiMAX and Internet technologies in these emerging markets, according to Augere. AR
