Billionaire Spurned by Buffett Seeks Global Wi-Fi NetworkBrendan Coffey
James “Jay” Monroe III isn’t in a rush. Dressed in blue jeans and a monogrammed white dress shirt, the investor sips ice water and pauses to greet Dakota, his Great Dane-blue heeler mix who bounds through the Union Pacific Freighthouse in downtown Denver.
Monroe bought the building when it was derelict in the 1990s and let his kids throw rocks at the windows. Today, it’s his headquarters, overlooking Coors Field and several properties he’s developed in the city’s revived LoDo district.
“Nothing happens fast. There’s a myth about that,” Monroe said. “Our investment philosophy is always pretty much the same: If you know you’re right and you just have to manage the problem, then make the investment.”
Taking the patient approach has allowed the 59-year-old to turn his closely held Thermo Cos. into a real estate, telecommunications and financial conglomerate. Starting in 1984 with $40,000 -- the money he and his wife made from selling their home -- Monroe sold diesel engines and developed power plants and fiber optic networks.
He later became majority owner of Globalstar Inc., a satellite company he bought in bankruptcy in 2003 and wants to use to sell voice and data services to the 2 billion people who live or work in the 75 percent of the world without cellular or landline access.
It’s also made him a billionaire. He has a net worth of at least $3.2 billion, according to the Bloomberg Billionaires Index, and has never appeared on an international wealth ranking. Monroe, who tried and failed to get Warren Buffett to invest in Globalstar six years ago, said his adult children will be surprised to learn he’s amassed such a fortune.
“I wish I was telling you this in a bar, instead of for a story. My kids don’t really know this stuff,” he said, referring to his wealth. “They’re both very accomplished at what they do. One is a terrific oil painter; the other, all he wanted to do is be a school teacher.”
Monroe owns more than 653 million shares of Globalstar, or about 70 percent of the company, according to regulatory filings. He says he holds about $500 million in TW Telecom Inc. stock and about $400 million in shares of Kinder Morgan Management LLC, the latter of which he received selling energy assets in 2008. His stake in fiber-optics provider Fiberlight LLC is valued at $750 million, the billionaire said.
Globalstar has the potential to become Monroe’s best investment or his biggest headache. The stock rallied to $4.46 in mid-July from 59 cents a year ago, pushing Monroe’s net worth to more than $5 billion. A report this month from a hedge fund encouraging investors to bet against the company drove the shares down to $1.71. The company was down 4.1 percent to $2.10 at 10:01 a.m. today in New York.
At issue is Monroe’s plan to covert Globalstar’s voice spectrum into terrestrial Wi-Fi services. When spectrum was divvied up in the 1990s, the band Globalstar was assigned for satellite voice services -- channel 14 of the 2.4 gigahertz band -- was also included in the unregulated spectrum in which Wi-Fi has evolved. Every Wi-Fi enabled device already has the ability to use Globalstar’s channel 14.
“It can become something truly unbelievable,” said Monroe, who envisions demand from urban consumers who never want to be unconnected as they travel and from people in areas with no broadband or mobile phone coverage who want improved data and voice access.
Globalstar will offer a paid Wi-Fi service with little interference to consumers with a mobile hotspot if his plans come to fruition, Monroe said. The company already offers satellite-based data services called Sat-Fi, which it released to commercial customers in June for $999 and a monthly subscription fee. Next year it plans a consumer model for $100, plus a subscription, Monroe said.
“The opportunity is that Wi-Fi is the most ubiquitous wireless standard in the world,” Jason Bernstein, an analyst with Odeon Capital Group LLC, said in a phone call. “You’ve got billions of devices using 2.4 Wi-Fi and Globalstar is right next door.”
Bernstein said Globalstar’s spectrum alone is worth $4.5 billion if the Federal Communications Commission approves a petition to open the spectrum for terrestrial purposes.
Should the FCC decide in Monroe’s favor -- it has no obligation to rule at all -- there’s a chance a major cellular company will partner with Globalstar and license the bandwidth to transfer data services from networks that have become overloaded by smartphones, according to James McIlree, an analyst at Chardan Capital Markets LLC.
“Amazon, Apple, Google have all been talked about potentially wanting their own private nationwide Wi-Fi channel or communications channel,” McIlree said.
Globalstar disclosed there have been discussions with potential partners it didn’t identify on an Oct. 9 conference call.
Sahm Adrangi, chief investment officer of Kerrisdale Capital Management LLC, is betting on a decline in the company’s shares. In an Oct. 6 report, he wrote that Globalstar’s spectrum “is worth nothing, and it takes little more than a rudimentary understanding of wireless communications to realize that.”
In Adrangi’s view, Globalstar’s plan to ease Wi-Fi band-congestion could be more easily fixed by other technical solutions, such as updating routing equipment, properly setting existing free channels to minimize interference and shifting to the 5 gigahertz spectrum. Manufacturers of existing 2.4 Ghz Wi-Fi enabled devices may not do the programming to allow access to the new band, he said in the report posted online.
By promoting otherwise, Monroe is “hoping a greater fool” will bail him out, Adrangi said.
“The behavior of Kerrisdale is reprehensible,” Monroe said in an Oct. 7 e-mail.
Globalstar held a conference call rejecting Adrangi’s comments three weeks ago and defended its spectrum plans in a press release last week.
Globalstar is Monroe’s latest investment in a career filled with asset-heavy businesses with long-range payoffs. Born in Cincinnati, he graduated from Tulane University with a political science degree in 1976. After moving to Denver and selling industrial equipment for Stewart & Stevenson, he saw an opening to develop cogeneration plants under an energy deregulation law.
While his employer didn’t want to own power plants, it wanted to sell equipment to them and helped Monroe get $60 million in financing to build a 76-megawatt plant in Greeley, Colorado, in 1984. He expanded the business to four plants that had as much as $4 million a month in revenue.
He invested in residential real estate and commercial finance, and brought on James Lynch, a Kidder Peabody banker involved in the energy financing deals, as a partner.
“We look for three things: a change in technology, a change in regulation and a trend,” said Lynch, explaining the partners’ investing philosophy in a September interview in Providence, Rhode Island.
The telecommunications industry fit the bill. The partners began buying fiber-optic assets in high-population areas, betting that fears of excess supply were overblown. They sold one of the businesses, Xspedius Communications, to TW Telecom Inc. for $533 million. Monroe bought back an unprofitable part of Xspedius and named it Fiberlight.
“It’s a massive system and the sellers didn’t want it for some of the dumbest reasons you can imagine,” Monroe said. “So we paid a few million dollars for it. That business is printing money.”
Fiberlight has 1.5 million miles of cable and an enterprise value of $1 billion, according to Lynch, who also serves as Fiberlight’s executive chairman. Enterprise value is defined as market capitalization plus total debt minus cash.
When the opportunity came to buy control of Globalstar in 2003, Monroe figured he could turn it around by simplifying and lowering prices to lure more consumers. Globalstar abandoned a $1- to $3-per-minute billing model and began selling monthly plans. Sales jumped 124 percent to $137 million in 2006, three years after the new pricing was introduced.
In 2007, Globalstar’s satellites started failing earlier than expected. The replacement units took three years longer to be delivered than promised by Thales Alenia Space SAS.
“That was traumatic,” Monroe said. “You don’t expect your vendor that’s getting paid hundreds of millions of dollars to flub it.”
The delays forced Monroe to pump more than $600 million of his own money to keep Globalstar afloat. He tried and failed to entice Warren Buffett into investing at that time.
“I’m better off focusing my time and thoughts on businesses I can understand better and into which I can put a real chunk of money,” Buffett said in a letter, which is now framed and hanging in Thermo’s Denver office.
“I asked for $350 million,” Monroe said. “I thought I was asking for a lot of money.”
Globalstar had sales of $88.1 million over its most recent four quarters, its best 12-month performance since 2008. Among its successes is SPOT, an emergency beacon that resulted in 3,000 rescues of lost or injured hikers and boaters in the past 7 years, according to Globalstar. A basic SPOT device costs $100 with a $100 annual service plan.
Profits are harder to find. Globalstar hasn’t been profitable in 22 quarters, a fact Monroe partly attributes to accounting conventions for in-the-money options he and others have from past financing of the company.
“Globalstar is in a healthy market, but it’s certainly not as big as cellular and it’s not growing as fast as the Internet,” said Chardan analyst McIlree.
Complicating Globalstar’s recovery is the need for Monroe to manage shareholders expectations. As a condition to exiting bankruptcy in 2006, the court insisted Globalstar sell shares in a public offering so minority owners could cash out.
The company sold shares on the Nasdaq Stock Market at $17 and never traded above that mark, sliding to 15 cents by December 2008 amid its equipment troubles. Revenue bottomed out at $64 million in 2009.
For Monroe, navigating a public company will mean going beyond dealing with technical hurdles. He’ll also need to address short sellers betting his company will fail, as well as investors who fear he’ll take the company private and deprive them of the payoff they see in the long run.
“There are shorts out there, for sure. They call you up, pretend they’re long and then short you,” Monroe said. “Long-term investors know us, enough to know that when things got really hairy and the company needed another $50 million, we always put it in.”