Beam Communications looks to unlock latent value in ZOLEO JV through arbitration

Leading Australian mobile satellite technology innovator Beam Communications (ASX: BCC) has welcomed news that arbitration has commenced to clear up recent issues related to its ZOLEO joint venture.

Equally owned by Beam and Canada’s Roadpost Inc., the ZOLEO joint venture is responsible for the highly successful ZOLEO product range, with around 80,000 subscribing customers and business turnover of around $41 million in FY23.

ZOLEO’s intuitive and seamless global messaging service has provided consistent and significant recurring revenues to the joint venture participants since 2018.

However, in recent months the Beam board has raised concerns over an increase in differences of opinion between the JV partners as to the direction ZOLEO should take.

Beam proposed resolution not met

In response, Beam’s board put forward a proposal that, it believes, was in the best interests of both Beam and ZOLEO Inc., that the ownership of the JV should reside with just one of the JV’s existing shareholders.

After a period of negotiation between the parties failed to result in an agreement, it has now been decided that the matter should enter into arbitration.

Beam chairman, Simon Wallace, said that although partners in any joint venture may sometimes have opposing views as to the respective priorities of each partner, the ongoing lack of alignment between the owners of ZOLEO Inc. was entirely unacceptable to Beam.

Arbitration now underway

As a consequence, formal proceedings have commenced between the JV parties to be held before a Canadian arbitrator.

Mr Wallace said that entering arbitration is a positive situation as it will facilitate the resolution of the parties’ matters of dispute and potentially the ownership of the JV.

“While the attempts by Roadpost and Beam to agree on the terms of either party’s acquisition or disposition of their respective JV interests have, to date, been unsuccessful, we look forward to advocating vehemently for Beam’s robust legal position before an independent third party,” Mr Wallace said.

Responsible course of action

The Beam chairman said it is clearly in the best interests of the company’s shareholders to resolve the ownership of the JV and that entering the arbitration process is both a responsible and essential course of action.

As Beam has assigned zero value to the JV on its balance sheet, any transaction may be very value accretive for the company once the issue is resolved.

“The company regards as objectively compelling its claim that Roadpost has, through its acts, conduct and omissions, details of which would be unwise to reveal in this announcement, breached various and essential terms of the Joint Venture Agreement between the parties, thereby availing Beam of certain rights and remedies,” Mr Wallace said.

“Beam’s obligations to its shareholders demands that these rights be prosecuted against Roadpost and we enter the arbitration process willingly and confidently.”

“Importantly, the operational performance of ZOLEO Inc. is not anticipated to be adversely affected by this action and each JV participant retains both the obligation and the incentive to optimise ZOLEO’s continued success. Furthermore, no alteration to Beam’s forward guidance is either necessary or provided as a result of this matter,” Mr Wallace said.