Global Eagle is a leading provider of satellite-based connectivity and media to global mobility markets across air, sea, and land. Its in-flight connectivity solutions have been installed on nearly 750 aircraft, and its content segment selects manages and distributes media content to more than 150 airlines worldwide. ENT recently acquired Emerging Market Communications, EMC, which has further expanded and diversified its revenue streams into the maritime sector.  ENT's most direct public company comp would be GOGO which was recently written up as a short (I tend to agree) but while they operate in the same IFEC (in flight entertainment & connectivity) space I would argue that ENT has superior offerings (HNA would seem to agree as they essentially ditched a previously announced term sheet with GOGO on 50 airplanes and instead awarded all 320 to ENT), cost structure, capex requirements and future prospects.  I admittedly do not get into the longer term debates and shifts in the industry (Ka vs. Ku and impact of larger competitors like VSAT and Panasonic) but rather point to the extreme valuation disparity between GOGO and ENT and primarily focus on the implications of the recent deal with HNA Shareco to further highlight the discrepancy.

ENT has 85mm shares outstanding for a market cap of 580mm and net debt pf for EMC and UMG settlement of 390mm for 970mm EV.  2017E Adj. EBITDA estimates are in the 110-120 range which is down ~20% after ENT reported weak Q3 results and materially lowered its 2016 guidance.  The big news of the quarter however was the agreement that ENT entered into with Shareco of HNA Group (more below) - the implications of which have not been factored into any sell side models or estimates.  Even without the Shareco deal, the relative valuation between ENT (8.4x 2017E EBITDA) vs. GOGO (21.3x) suggests a highly attractive opportunity.  

The Shareco deal was announced along with Q3 results on Election day Nov 8 and my best guess is that the shock of Trump's victory and the ensuing scramble of investors trying to process all the macro implications of Making America Great Again have completely overshadowed this YUUUGE win for ENT where a major Chinese conglomerate (HNA) has chosen ENT (through a JV with Shareco) to be the exclusive provider of IFEC equipment and services on all HNA airlines which currently comprise 320 aircraft with the potential to grow to over 500 planes.  For context, ENT's entire connectivity business is currently installed on ~750 aircraft.  The agreement also calls for Shareco to acquire a non-controlling 35% stake in ENT at $11/share (60%+ premium to current price).  To recap, HNA/Shareco, has agreed to purchase shares at a 60%+ premium that does not even give them majority control AND is granting them exclusive rights to business which will eventually increase their installed aircraft base by 40-60%+ and provide ENT with a clear path to gaining a solid foothold into expanding their business into China.

The deal still requires regulatory approval but management is confident that there won't be significant regulatory pushback:

CEO Dave Davis: "Now that we've signed the agreement we're gonna apply for DSS and CIFIUS approval, which are the government approvals that are required.

We don't expect there to be significant issues, and the reason is the amount of classified business that we do is very, very small, well under $500,000 a year in revenue. So to the extent that we would need to mitigate any issues from a confidentiality or classified information standpoint it's relatively straightforward to mitigate.

That's particularly true with stage one. But we had extensive consultations with attorneys on our side, Shareco had extensive consultations with attorneys on their side. And I think we're all fairly confident, very confident, actually, that there's not going to be any significant regulatory hurdles in front of us."

The structure of the direct investment by Shareco and the JV is also designed in a way to allow ENT to maintain its independence and minimize conflicts so that it can still pursue business with HNA airline competitors like Air China with whom ENT had just announced, a week before, the commencement of commercial trials on an Air China Boeing 777.

The investment agreement is broken into two phases.  In phase 1, which only requires regulatory approval and not shareholder approval, ENT issues 9.9% in new primary shares to Shareco for $103mm in cash at $11/share.  Pre-existing ENT shareholders are "diluted" to 90.1% of the company but not really since the shares are purchased at a substantial premium. Phase 2 has two parts and requires shareholder approval but this shouldn't be an issue as the largest shareholder PAR Capital (35% stake) is supportive of the deal and has agreed to "vote in favor of the issuance of the Shareco Subsequent Investment and Shareco America's purchase of Common Stock in the Tender Offer" (see SC13D/A and Stage 2 Letter Agreement).  Part 1 of Phase 2, ENT issues another $150mm to Shareco at $11/share further "diluting" ENT existing shareholders to 78.7% but in exchange the $150mm is invested into the JV with Shareco for 49% ownership.  After the JV, Shareco will purchase another 14.8mm shares at $11/share through a tender offer and PAR Capital has agreed to tender a "pro rata portion of the maximum number of shares subject to the Tender Offer and, if the Tender Offer is not fully subscribed, tender additional shares such that the maximum number of shares subject to the Tender Offer are tendered."  So if by 2H 2017, which is when Phase 2 is expected to be executed, shares have exceeded $11, minority shareholders like us will not need to tender our shares to complete this investment agreement but will still be able to partake in all the benefits that the relationship with Shareco JV will provide to ENT's connectivity business.

Risks

Regulatory approval somehow turns out to be harder than expected

Southwest RFP is still outstanding and in the unlikely event that ENT loses that contract the stock will react negatively but even then current contracts go out to 2020 and with the diversification from the EMC acquisition and new Shareco business the actual long term impact will not be as catastrophic as the double digit % of business that Southwest currently makes up.

Catalyst

Regulatory Approval and Phase 1 in 1H 2017 and Phase 2 in 2H 2017

Realizing cost synergies with EMC