Cramer: Globalstar CEO defends his controversial stock
Jim Cramer always wants to make sure investors get both sides to a story.
Last Friday, the "Mad Money" host focused on a battleground stock Globalstar, a satellite phone company that is lobbying the Federal Communications Commission (FCC) for permission to use their electromagnetic spectrum to create a proprietary Wi-Fi service.
That is why the "Mad Money" host welcomed founder and CEO of Globalstar, Jay Monroe, to share his view on the company for investors to make a final call on Globalstar.
While Cramer initially did recommend this stock in July, he changed his opinion after hedge fund Kerrisdale Capital's decision to short the stock, claiming that it was headed to $0. It also attempted to block the FCC ruling in favor of Globalstar. Since that time, the stock has plummeted 11 percent in six months.
"I thought it was too risky for regular investors, especially because of concerns about the balance sheet and worries that the company, which increased its share count by 76 percent over the last year, might be in danger of massively diluting its stock in order to appease its creditors," Cramer said.
Over time, this stock has become a polarizing one, prompting either bulls or bears on the name, which is a flag for Cramer to think it is a battleground stock.
"It is polarizing because of Kerrisdale. Prior to that I think people understood pretty well that the spectrum was needed throughout the country… to me, when people understood that and they understood how it was going to be used, it was relatively speaking, smooth sailing. When Kerrisdale introduced a lot of negative chatter to the discussion, taking positions that were technically unsound but that were none the less, loud, we ended up in the situation that we are in," Monroe said.
According to Kerrisdale's experts, the issue of Wi-Fi traffic is not as important as Globalstar has made it sound. While Globalstar would like to create access points for low-powered Wi-Fi, how in the world would they pay for this?
"It is almost free. If you think about how a network like this gets built out, it's almost viral in nature. The partner that we would have … is going to have access to your house already or access to the street already. As a result, they will build the network out," added Monroe.
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As for Cramer's point that the stock has become heavily diluted by both issuance of shares, and the CEO purchasing a significant amount of shares on the open market, Monroe responded by saying "that dilution happened as a result of the first constellation replenishment process. This was a very painful process for Globalstar … The only additional dilution is the dilution that can be baked into the share count right now."
The CEO commented on a potential time frame for the Federal Communications Commission ruling to allow the company to use its satellite only spectrum for Wi-Fi, saying "we hope the order will come out in the next little while."
Cramer and Monroe both agreed that there is a lot on the line here. Now that Monroe has cleared the air with Cramer, it's up to Cramericans to take a side of either the bull or the bear.
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