Satellite Radio IPO Carries a Disclosure

WorldSpace Inc., which was created to beam satellite radio to the poor of the developing world and helped spawn XM Satellite Radio Holdings Inc. to serve the U.S. market, yesterday sold stock to the public in an initial offering that valued founder Noah A. Samara's holdings at more than $100 million.

In addition to allowing Samara to cash in millions of dollars of shares yesterday, the company said in a regulatory filing that the IPO would trigger stock awards for Washington insiders who serve on WorldSpace's board -- Jack Kemp, a former congressman, cabinet secretary and vice presidential candidate; Charles McC. Mathias Jr., a former U.S. senator from Maryland; and William Schneider Jr., a former undersecretary of state who heads a scientific advisory board at the Pentagon.

The cash infusion also could improve potential returns for the company's longtime backers, a group of Saudis that includes Salah Idris, the owner of a plant in Sudan that the United States bombed in 1998 alleging it had ties to Osama bin Laden, and Khalid Bin Mahfouz, a banker who settled allegations in the BCCI bank scandal in the early 1990s and has since been accused in a lawsuit of backing bin Laden financially.

This prompted WorldSpace to make an unusual disclosure to the Securities and Exchange Commission: "Allegations of ties between certain of our investors and terrorism could negatively affect our reputation and stock price." The investors "have repeatedly denied all such allegations," the company said, adding that they no longer have any "voting control rights."

A company spokeswoman declined to comment, saying securities regulations prevent Samara and others from talking about the company during the so-called quiet period around the offering.

The offering was a boost for the D.C. company, which has lost more than $2 billion since it was founded in 1990. WorldSpace reported revenue of $8.6 million last year, down from $13.1 million in 2003. The company launched its first satellite in 1998 and recently counted 63,000 subscribers across Africa, India and the Middle East, according to a company filing with the SEC. That was far short of the millions of subscribers the company told the SEC that it must ultimately have "in order for our business model to succeed."

WorldSpace said before the offering that it planned to sell 11.5 million shares, which would have grossed $241.5 million at the offering price of $21. It did not report the number of shares that it actually sold. The company said in an IPO prospectus that Samara planned to sell shares that would have been worth $7.7 million.

The new stock, which trades on the Nasdaq Stock Market, enjoyed a warm reception. Investors bid up the share price to a high of $26 before it closed at $22.36.

Roger J. Rusch, a satellite communications consultant, said the IPO reminded him of the tech bubble of the late 1990s. "I cannot understand why any serious investor would buy into this enterprise," said Rusch, who is president of TelAstra Inc., which advises investors. "It's the old argument that there's a new economy, and the way that works is that companies operate at a loss and they find new investors to fund the operation, so it operates like a charity."

Amber Zentis, a former director of investor relations for WorldSpace, countered that the business could become a phenomenon. "In other parts of the world, you can't charge as much per subscriber" as in the United States, "but there are millions more subscribers to be had."

Samara, 47, grew up in Ethiopia and Tanzania, the son of a diplomat, according to a 1998 Washington Post story, and earned a law degree at Georgetown University. Before founding WorldSpace, he worked at the law firm Venable, Baetjer, Howard & Civiletti LLP and at an early satellite telecommunications company called Geostar Corp.

WorldSpace helped launch XM Satellite Radio years ago with initial funding and technology but sold its stake in 1999. XM chose the richer U.S. market and arranged to have its radios installed in cars, amassing 4.4 million subscribers. Samara, meanwhile, focused WorldSpace on poorer parts of the world, such as his native Africa, where he saw a desperate need for information.