WASHINGTON-Motient Corp. may be the wireless industry’s premier high-wire act.
The Lincolnshire, Ill., company is attempting a great leap forward from a business model based on unprofitable land-based wireless data operations to one premised on high-risk-but potentially lucrative-mobile satellite communications that would work with ground cellular networks to bring service to small wireless handsets throughout North America.
Motient, a Pink Sheets stock with a $1.4 billion market capitalization, owns 49 percent of Mobile Satellite Ventures L.P. and 61 percent of TerreStar Networks Inc. Both of the latter firms hold valuable spectrum licensed by the Federal Communications Commission. The value was made all the greater by the FCC’s 2003 decision permitting mobile satellite service licensees to create hybrid wireless networks using powerful satellites and land-based cellular systems. The ability of MSS licensees to integrate an “ancillary terrestrial component” into their operations is regarded as a possible fix for a satellite sector that has struggled mightily to stay alive the past decade. Indeed, coming next-generation MSS-ATC systems are arguably the biggest X factor in the wireless industry today. The potential is there to revive and revolutionize the satellite business. But risks remain, and there are no guarantees. The inherent value of satellites was highlighted during devastating hurricanes Katrina and Wilma last year, as high winds damaged countless mobile-phone transmitters and temporarily halted service to thousands of subscribers in Gulf states.
Motient is betting big on MSS-ATC. It is an enormous business challenge. On top of it all, there are legal problems that just won’t go away.
While it attempts to reinvent itself by leveraging ATC and seeking a big-time telecom partner, Motient has been forced to fend off an insurgent proxy fight led by its largest shareholder: hedge fund Highland Capital Management L.P. and its founder/president, James Dondero.
Last week, Dondero, who bolted from Motient’s board earlier this year, struck again. Highland filed a new lawsuit against Motient after Motient rebuffed Dallas-based Highland’s demand to open its books and produce records that Dondero wants in hopes of bolstering his claim that the company is mismanaged.
“By refusing to provide this important information, Motient is continuing to stonewall its stockholders. Stockholders, regardless of the size of their investment, have the right to know what is going on at the company they own,” stated Highland. “If Motient’s board and management have nothing to hide, they should produce the requested materials. Disclosures in Motient’s recently filed Form 10-K and restated financials for the first three quarters of 2005 only deepen our concerns about the gross mismanagement at Motient. We believe Motient is suffering from poor operating performance, conceded financial reporting deficiencies, recurring execution and management oversight problems, and extensive board and management self-dealing and conflicts of interest.”
Highland, which manages $20 billion in assets, said Motient’s revenues steadily declined in recent years, while overhead skyrocketed during the same period. Motient, which emerged from bankruptcy in 2002, lost $158.4 million on revenues of $13.8 million in 2005. Motient posted revenues of $36.9 million and $54.5 million in 2004 and 2003, respectively, according to Highland.
In the 2005 annual report recently filed with the Securities and Exchange Commission, Motient attributed last year’s poor performance to the loss of two major customers, IBM Corp. and Brinks Inc. IBM was the primary customer on the original terrestrial wireless data system built by Motorola Inc. 15 years ago. Motient also blamed the downturn on a general erosion of its customer base, as large enterprise customers move to high-speed wireless networks from carriers like Cingular Wireless L.L.C., Verizon Wireless and Sprint Nextel Corp. Motient currently utilizes Cingular’s and Sprint Nextel’s wireless networks.
To date, Dondero has been unsuccessful in attempts to oust Motient’s board of directors. Highland and Motient have filed a handful of lawsuits against each other in various venues in recent years. In March, a Delaware state court threw out one of the Highland suits.
Motient said Highland’s latest suit is just more of the same.
“Highland and Dondero’s (Section) 220 demand seeking information concerning their re-hashed allegations of mismanagement and waste is improper given that a Delaware Court has already found that the same allegations that are contained in their 220 demand are not sufficiently particularized to survive a motion to dismiss,” Motient said.
“Furthermore,” added Motient, “it is entirely inappropriate for Mr. Dondero and Highland to seek discovery through the artifice of a Section 220 demand given that they have consistently refused to comply with reasonable discovery requests in multiple pending lawsuits against them.” Demand letters are authorized under Section 220(b) of the Delaware General Corporation Law.
