By Maxwell Murphy, A Dow Jones Newswires Column
NEW YORK (Dow Jones)--At first glance, the world of GlobeTel
Communications Corp. (GTE) appears akin to Dan Brown's blockbuster
thriller "The DaVinci Code".
GlobeTel's a Florida-based company that, until now, has largely
gleaned revenue from selling bundled telephone minutes. Dig a little
deeper into GlobeTel's world, however, and you'll find a cast of
global characters including a former astronaut, diplomats, Colombian
President Alvaro Uribe, a firm founded by Henry Kissinger and a
former CIA employee. There's even a member of the Knights of Malta, a
millennia-old charitable Roman Catholic order some claim is as
shadowy as Brown's puppeteering Priory of Sion.
But putting all this intrigue aside, GlobeTel's worth a look from the
far less conspiratorial aspect of pure fundamentals.
GlobeTel, a former Bulletin Board shell company, has racked up more
than $55 million in losses over the past several years. But it has
aspirations to usher in a global wireless revolution, using a
technology called WiMax it bought last year for nextto nothing, that
it someday soon hopes to combine with its high- tech, blimp-like
Stratellites (GlobeTel says "rigid dirigible" is more accurate than
blimp).
The company says it just inked a deal with a group of Russian
investors it says will land it a $150 million payment this month.
There's another $450 million on top of that when it completes its
wireless rollout in 30 major Russian cities over the next nine
quarters, but GlobeTel says it's even more excited about the
recurring revenue streams the deal promises than it is about the
initial payment.
Though details are scant, $600 million would help convince its
investors that GlobeTel's for real and prove wrong a growing throng
of short sellers betting the hope is no more than hype. Short
interest rose more than 32% from mid- December through mid-January,
to more than 5.3 million shares sold short.
Neither shorts nor true believers have to wait long; GlobeTel Chief
Executive Tim Huff says the $150 million is due in the next five
days. A press conference in Russia with LLC Internafta, the foreign
investors, will in February set the stage for network building in
Moscow and Saint Petersburg beginning in April, he said.
GlobeTel's stock traded up slightly at $3.02 on the American Stock
Exchange in Thursday midmorning trading, following a sharp drop
Wednesday on heavy volume with no apparent news. Though it's off 33%
from an all-time high earlier this month, it's still prodigiously
above the roughly 15 cents it fetched just over a year ago. With more
than 121 million fully diluted shares outstanding, GlobeTel has a
market value above $360 million.
A successful Russian deployment - along with revenue from deals it
says are in place in countries like Mexico, Colombia, Japan, China
and Brazil - would justify that and then some.
If successful, tiny, unheralded GlobeTel will go down as one of the
shrewdest acquirers in recent memory. GlobeTel paid only $2 million
in stock just seven months ago when it bought HotZone Wireless. That
deal gave it WiMax and other wireless technologies which GlobeTel
hopes will deliver wireless telephony and broadband to Russia and
other nations.
Put another way, the Russian deal is worth 300 times what the core
technology cost GlobeTel.
Huff says HotZone, formerly a GlobeTel partner, sold the technology
because it ran out of money, and he sees its acquisition as no more
unusual or improbable than Microsoft paying $50,000 for an early
version of the MS-DOS computer operating system.
Cynics have plenty of ammunition on GlobeTel: a history of losses,
related party deals and lofty aspirations touted by a raft of press
releases.
In 2002, Paul Taboada, an analyst with Hornblower & Weeks, was
suspended and fined by National Association of Securities Dealers
for "issuing a research report containing material misrepresentations
and omissions" about GlobeTel back when it was called American
Diversified Group. (His firm and two principals were also penalized).
According to GlobeTel filings, Taboada consulted with the company for
many years and is now an investor in a class of its preferred stock.
If GlobeTel's as full of hot air as the fleets of dirigibles the
company sees as a cheaper alternative to satellites, some pretty big
reputations are going to take a bath. Officers, directors and
partners of the company include a former astronaut, Rick Searfoss,
and a couple other well-respected employees of National Aeronautics
and Space Administration that a NASA spokesman concedes GlobeTel was
able to poach.
In September, it named former U.K. ambassador to the U.S., Sir
Christopher Meyer, as its chairman. The distinguished statesman is
currently chairman of the U.K. Press Complaints Commission and serves
on the boards of several U.K. companies.
Then there's J. Randolph Dumas, a successful global businessman,
Wharton graduate and, several biographical notes on him say, former
national briefing officer for the CIA. The CIA doesn't confirm or
deny employment or discuss companies, a spokeswoman said. Dumas was
until recently employed by Rubikon Partners, a private equity firm he
co-founded with Henry Kissinger, Leo A. Daly III, a third-generation
architectural success and self-proclaimed Knight of Malta, and
GlobeTel's most recent director, Dorian Klein.
The Uribe connection stems from a meeting with the Colombian leader
and his cabinet last year over a potential $50 million deal, made
with another company organized in Florida early last year, to float
five Stratellites and set up a wireless network in the South American
country. GlobeTel in July said it " received strong support for the
project from several high ranking government officials including
Colombian President, Alvaro Uribe," who GlobeTel officials said they
met at his palace in Bogota and who was "very gracious and told (
GlobeTel) that he would help (it) in any way that he could to bring
this technology to his country." A call to the Colombian embassy to
the U.S. went unreturned.
GlobeTel's Sanswire unit wants to put fleets of these so-called
Stratellites in the stratosphere, 65,000 feet over the Earth's
surface. The Stratellites look like blimps, but GlobeTel is quick to
remind they're a different breed of dirigible that hovers above the
weather and can eliminate some of the signal delays and other
problems experienced when transmitting to and from satellites in
outer space. Since acquiring Sanswire in early 2004, GlobeTel has
been developing and showcasing prototypes, and CEO Huff says a demo
model will have a test run at Edwards Air Force Base next month with
a working product ready in six to 12 months.
It also says deals with an Indian company, Financial Software &
Systems, will be a huge success when GlobeTel's stored-value cards -
a MasterCard that can also be used as a calling card and secure money-
wiring-and-receiving device - hit the market in the coming months.
With its new initiatives and a focus on the margins of its current
business, Huff says debt-free GlobeTel sees break-even results for
the current quarter.
Today's sales, growing rapidly as they may be, are designed more to
boost GlobeTel's top line than its bottom. Right now, GlobeTel gets
the vast majority of its revenue from selling wholesale international
telephone minutes on its networks to a select few major
telecommunications providers, and that business has the slimmest of
gross margins. Huff says GlobeTel hopes to double that business, to
about $200 million a year, and make it profitable, but the focus in
coming quarters will be its other ventures.
Even Dan Brown's fictional protagonist, Harvard symbology professor
Robert Langdon, might not be able to figure out whether GlobeTel's
Russian wireless network will succeed. Until the story climaxes,
expect GlobeTel investors on both sides of the fence to feel like
they're reading a frenetically paced novel full of excruciatingly
short chapters that each end with a cliffhanger.
(Maxwell Murphy is one of four "In the Money" columnists who take a
sophisticated look at the value of companies, and their securities,
and explore unique trading strategies.)
By Maxwell Murphy; Dow Jones Newswires; 201-938-5173; maxwell.murphy@
dowjones.com
