Globalstar Shareholders Try to Push Out Chairman
Globalstar Inc. (GSAT) called off a $1.65 billion merger after its largest outside shareholder, Mudrick Capital Management LP, cried foul. But the investor isn't done fighting with Jay Monroe, the board chairman who orchestrated the deal.
Mudrick and Warlander Asset Management LP are asking the Delaware Chancery Court to overhaul Globalstar's(GSAT) corporate governance, saying the struggling satellite communications venture's directors can't be trusted.
The lawsuit, unsealed on Friday, draws on materials and documents turned over to Mudrick after it challenged a proposal for Globalstar(GSAT) to purchase wireless assets from Mr. Monroe, its controlling shareholder. Globalstar(GSAT) abandoned the proposed deal in July after Mudrick challenged how the assets, parked in an investment vehicle called Thermo Acquisitions LLC, were valued.
Now Mudrick and Warlander are seeking to bar Mr. Monroe, the executive chairman of Globalstar's(GSAT) board, from serving as a director or officer of a Delaware corporation, a remedy typically reserved for executives targeted by regulators for securities law violations.
"If there's ever a case for [the court] to do something this extreme, this is the one," said Jason Mudrick, the firm's president and chief investment officer, in an interview with WSJ Pro. "They called off the merger, but the damage is done."
A Globalstar(GSAT) spokeswoman declined to comment.
Globalstar (GSAT) doesn't face an immediate risk of bankruptcy but needs to raise roughly $50 million by the end of the year to cover a loan payment, according to securities filings. A person familiar with the matter said it hasn't yet locked down a funding source.
The company's stock has lost 61% this year and was trading at 50 cents a share on Tuesday, making any equity raise more dilutive for existing stockholders. Lifting the stock price would ease Globalstar's(GSAT) access to fresh capital. But Mr. Mudrick said Globalstar(GSAT) had become uninvestible "because the people running the company and governing it have showed a lack of duty to minority shareholders."
The plaintiffs contend that Mr. Monroe colluded with other directors to push the Thermo deal on terms that were overly favorable to him while disadvantaging outside stockholders.
Globalstar's (GSAT) lawyers denied in court that the deal was improper before the company terminated it. Mr. Monroe stepped down as CEO last month but remained as board chairman.
Mr. Monroe was on both sides of the proposed transaction. The deal had called for Globalstar(GSAT) to pay $1.65 billion for Thermo's ownership stake in several companies, including FiberLight LLC, which operates 14,000 route miles of fiber- optic cables in and around cities including Atlanta, Houston and Miami. Thermo would have been paid in Globalstar(GSAT) stock.
Mudrick and Warlander say Globalstar's(GSAT) stock was artificially suppressed when Mr. Monroe sold shares in the midst of negotiations with the Globalstar(GSAT) board over the Thermo transaction. The sale of 38 million shares occurred while he possessed nonpublic information about Globalstar's(GSAT) plans, according to the lawsuit.
The plaintiffs have also accused four members of a special board committee of receiving stock awards that amounted to bribes from Mr. Monroe to go along with the deal. His stake in Globalstar(GSAT) would have rocketed to nearly 90% from 53% because of Globalstar's(GSAT) low stock price, according to the complaint.
A Chancery Court judge in July ordered Globalstar(GSAT) to turn over to Mudrick documents about how the Thermo deal was negotiated and priced, as well as redacted copies of the minutes from board meetings. Some of those records are still redacted from public view as both sides haggle over their confidentiality.
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