I’ve often wondered if Global Eagle’s founders experienced the same dilemma as Benjamin Franklin when deciding which bird to choose as their emblem, and I’ve noted my opinion on several occasions that they appear to have chosen poorly.
Now it seems that Global Eagle is up for sale and is trying to entice other inflight connectivity providers such as Panasonic, Gogo and Thales to buy the company. Its therefore not surprising that Global Eagle has recently cut a somewhat lonely figure when maintaining that the inflight connectivity sector is not in a bubble, while Panasonic is hinting strongly that “The supplier with insufficient subscribing aircraft would likely need to exit.”
Global Eagle will obviously be pointing to the $400M that Thales paid for LiveTV as evidence that it should command a premium price, but Global Eagle itself was the main cause of that high price. Global Eagle came in with a last minute knockout bid and on Tuesday March 11, when John Guidon presented at Satellite 2014, Global Eagle clearly thought it would win, because Guidon hinted at the possibility that Global Eagle would soon have a new Ka-band modem. However, Thales countered with an even higher bid and was announced as the winner on Thursday March 13, at what appears to have been almost double that price that Thales had on the table a week earlier.
The bid for LiveTV was indicative of Global Eagle’s desperate struggle to achieve critical mass in its Row44 connectivity business, and after that failure, Global Eagle now seems to have decided to try and escape by selling the company while the going is good. Global Eagle also faces added time pressure from the potential expiry (at the end of the year) of DISH’s sponsorship deal for the Southwest “TV Flies Free” service, which is critical to Row44′s current business model.
My presentation at the GCAS conference in early June (where Global Eagle were conspicuous by their absence), highlighted some of the difficulties that standalone connectivity providers will face in the next year or two, and now Par Capital, which has been Global Eagle’s main backer, has taken a clear step towards selling the company, by converting its non-voting stock to common equity last month.
The challenge is that none of the potential buyers have an incentive to pay a high price for a vulnerable connectivity business (heavily dependent on Southwest Airlines who are widely rumored to be unhappy with service performance) and a slow growing content packaging business (which is reaching the limits of the gains that can be made through consolidation of smaller companies in the sector).
Thales has just paid a large premium for LiveTV and now needs to integrate that acquisition, while Gogo has had challenges in its past relationship with Southwest (which enabled Row44 to win that deal in the first place) and might not be sure of retaining the Southwest contract. Thus, although a Gogo-Global Eagle merger would make sense, Panasonic is potentially the IFC player that is most likely to consider taking over Global Eagle, although again it probably wouldn’t be willing to pay a large sum in cash (as seen in Panasonic’s apparent attempts to publicly talk down Global Eagle’s prospects).
Perhaps the only plausible deal that might make sense for both sides is if Panasonic decided to proceed with a spin-off of its Avionics division, and injected it into Global Eagle to gain a public listing for what should be a very valuable business. However, if that isn’t deemed feasible, then several people in the industry have told me that they expect Global Eagle will ultimately have to be sold at “fire-sale” prices.