Qualcomm Withdraws Offer to Back Plan to Rescue Globalstar

Qualcomm Inc. withdrew its offer to become a lead investor in a restructuring plan to save troubled satellite telephone company Globalstar, leaving Globalstar scrambling for another plan, sources close to the situation told Reuters on Tuesday.

The sources also said TE.SA.M, a partnership between France Telecom and Alcatel that provides 40% of Globalstar’s business in terms of communication traffic over its network, is trying to exit the business and has frozen all spending related to Globalstar except salaries and office rent.

The two decisions come at a difficult time for Globalstar, which previously warned that it might seek bankruptcy protection if it cannot restructure. Globalstar will have to devise an alternative restructuring plan under greater time pressure.

Qualcomm declined to comment.

Globalstar spokesman Mac Jeffery told Reuters: “Qualcomm remains a partner of Globalstar. They also remain a supplier of technology to Globalstar. They continue to work with us and all the partners on a restructuring plan.”

Globalstar is the third satellite telephone company to encounter problems, along with Iridium, the pioneer of satellite-based telephone services, and ICO Global Communications.

Satellite telephone businesses have had problems with high operating costs and lower-than-expected demand because of the quick spread and plunging cost of ground-based wireless services. Bulky satellite phones costing as much as $3,000 cannot easily compete with smaller, cheaper cell phones.

Shares of Globalstar Telecommunications, the publicly traded partner of Globalstar, closed off 2 cents at 32 cents on Nasdaq. Globalstar’s stock has under-performed the Nasdaq telecommunications index by more than 88% over the last year.

Qualcomm, one of Globalstar’s founders, had been considering buying the satellite firm’s assets as part of a restructuring plan discussed by Blackstone Group, Globalstar’s strategic advisor.

Under the plan, which was introduced at a May 3 meeting of Globalstar partners, Qualcomm and some other unnamed investors would have stepped in with cash to keep Globalstar afloat if the company agreed to file for Chapter 11 bankruptcy protection.

Qualcomm would have been the lead investor and Globalstar reportedly would have received as much as $500 million from the deal.

However, sources said Qualcomm’s due diligence team determined that the potential costs were too high after about five weeks of investigation.

Another source said Qualcomm might still be open to participating in a restructuring plan in which it would play a lesser role.

Globalstar is a partnership formed in 1994 by satellite firm Loral Space & Communications and Qualcomm. Loral owns about 38% of Globalstar.

Globalstar Telecommunications owns more than 40% of the business. Qualcomm and several other companies own the remainder.

At the end of 2000, the company had only $197 million in cash. In May, it reported a first-quarter net loss applicable to ordinary partnership interests of $145 million, compared with a loss of $216 million a year earlier.