Why did Phil Falcone really sell-off half his Inmarsat stake?

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Phil Falcone's Harbinger Capital surprised the Street on Monday when it sold 14 percent of its holdings in London-based satellite company Inmarsat. The sale grossed the $9 billion hedge fund around $650 million. Speculation of the major stock sale by this New York-based financier was first reported by the Sunday Times. The stock took a tumble on the FTSE 100 off the news based partly on the mis-conception that Falcone's sell meant he didn't believe in the future value of Inmarsat or that he'd sell the rest of his large stake and dilute the price.

But that's not what this transaction was about. Neil Hume, editor of FTAlphaville, wrote in his Markets Live chat today Falcone's large stake in Inmarsat was useful as a negotiating tool when he was finalizing his near billion dollar deal to lease their US satellite spectrum. Even though the lease had been approved before he bought LightSquared he still had to go through the political hoopla to get the FCC and Inmarsat to let a trader own it.

Hume wrote: the view out there now seems to be Harbinger used the stake for leverage in negotiation for spectrum,got what they wanted and decided to cash in for a nice profit

From my interviews with LightSquared and Falcone I have to second Hume's view. In fact, when I checked in with Falcone yesterday he said the stock sale will net a very good positive trade for his fund. One he could use to bring up performance considering his main fund is still down 13 percent through September. Contrary to what the Sunday Times assumed without any confirmation from Harbinger, the stock sell wasn't to raise money for Falcone's 4G wireless plan but more about the fact it was simply time to take profits off the trade he's been in for a few years.

Inmarsat thought the stock sale, organized by UBS and Credit Suisse, went well. In an email from the company they said "Over 50 investors sought to buy into the stake and the placement was over-subscribed."

Inmarsat still has some investor education to do though. Some on the Street seem to have realized the value of Falcone's billion dollar spectrum lease but more are worried about the remaining portion of his stake in Inmarsat hitting the market. Falcone still owns 14 percent of the stock. While the bankers on the deal say he can't sell it for 180 days; if UBS agrees to a sale, it could still happen and the Street knows it. Inmarsat traded down 3.97 percent today.

I think Falcone holds on to his Inmarsat position for a while. He even said in a public filing " I remain a strong believer in the company's future and am extremely happy to maintain a core position in the company's stock..."

Investors piling into the stock now are likely looking at if a private equity firm will make a run to buy the company. The smart money is still analyzing if Inmarsat could sell more of its valuable satellite spectrum in other countries down the road. If Falcone's 4G wireless network design, detailed in FORBES Magazine, actually works, we could see that spectrum really rise in value.


I'm a Wall Street investigative reporter who has written for the Greenwich Time, Hearst Newspapers, Forbes Magazine, Fortune.com, The Atlantic.com, New York Magazine, Ne...