Mudrick Files Public Version of Complaint Against Globalstar; Alleges Special Committee ‘Bribed’ With Stock Grants
The complaint seeks a finding that could be used to permanently bar Monroe from serving as a director or officer of a Delaware corporation.
A public version of Mudrick Capital’s lawsuit against Globalstar (NYSE: GSAT), Globalstar majority shareholder James Monroe, and others asserting direct and derivative claims for breach of fiduciary duty and unjust enrichment was filed today. The complaint was initially filed in the Delaware Court of Chancery on Tuesday, Sept. 25 but was just made available this afternoon.
The complaint arises from a now-abandoned $1.65 billion merger transaction between Globalstar and Thermo, which is controlled by Globalstar chairman, former CEO and controlling shareholder Monroe. As described in the complaint, the transaction “sought to combine Globalstar with several other investments owned or controlled by Monroe and Thermo, most notably FiberLight, a fiber-optic cable provider and publicly traded CenturyLink stock.”
Globalstar remains the highest risk company in the telecommunications sector, according to Quant Media technology.
According to the complaint, Plaintiff Mudrick Capital holds 5.6% of Globalstar’s stock and is the company’s largest independent stockholder. The action seeks “to hold the faithless fiduciaries who make up the [Globalstar] Board and control the Company to account for their millions, indeed potentially tens of millions, of wasted fees and expenses incurred in pursuit of the scheme set forth herein; to wipe out the huge stock grant ‘bribes’ described herein; to seek a remedy for Monroe’s plainly illegal stock sale at a time when he was in possession of material, non-public information regarding the Company, which he used to further his scheme to the Company’s distinct detriment.”
The complaint alleges corporate governance failings, alleging that “the Board has repeatedly shown blind loyalty to Monroe rather than minority investors.” According to the complaint, Monroe awarded the special committee members reviewing the proposed transaction with approximately $1.5 million in restricted stock on the same day that committee proposed the transaction value.
The complaint seeks unspecified damages, attorneys’ fees, and declaratory relief, including a finding of breach of fiduciary duty to allow for subsequent action under Delaware law to permanently bar Monroe “from ever again serving as a director or officer of a Delaware Corporation.” The defendants may now seek to answer or dismiss the complaint; absent an extension, their response is due by Oct. 15.
Earlier this summer, Mudrick Capital had won the right to further inspect Globalstar’s books and records to investigate a potential suit. The proceeding is before the same Vice Chancellor who heard the books and records proceeding, and the court’s opinion in that proceeding may offer some insight into the strength of the complaint here. In the books and records opinion, the court stated: “Globalstar is paying $1.645 billion for the Combination Transaction assets that are controlled by Monroe with no explanation for that valuation; in particular, the Company valued FiberLight at $1.245 billion, although it is likely worth $300-500 million.” The court also stated that “[e]specially in the context of an interested transaction, purchasing a company for $1.245 billion when the company failed to garner $350 million two years earlier with no explanation of the new valuation provides a credible basis to investigate mismanagement, waste, or wrongdoing—a point which Globalstar does not dispute.”
Globalstar’s debt consists of a $428 million credit facility due 2022 with a carrying value of $399 million. As of June 30, it was fully drawn. It was priced at L+3.25% through June 2018, and is now increasing by an additional 0.5% each year to a maximum rate of L+5.75%. While not listed under long-term debt, Globalstar has a financing arrangement with Thermo for $112.6 million.
