Iridium to Get $500 Million Cash Infusion

Monday, September 29, 2008

When Motorola's $6 billion global satellite phone system, Iridium, went belly-up eight years ago, few saw it as anything more than a whopper of a waste of good technology on the wrong application.

A small group of investors eventually rescued Iridium by offering $25 million for it, at a half-cent on the dollar. They changed its business plan and shifted its focus to selling communications services to research, defense, shipping and aviation entities instead of corporate travelers, earning profits since 2005.

The turnaround apparently sparked interest in the Bethesda company.

Last week, Iridium announced an agreement to merge with a so-called blank check company, a transaction that will give the sat-phone firm a $500 million cash infusion and allow it to wipe nearly $150 million in debt from its books. The deal, which must be approved by regulators, is scheduled to close in early 2009. It would clear the way for Iridium to begin building and launching a new generation of satellites to replace the 66 aging ones that are orbiting 485 miles above the Earth. The new constellation is projected to cost $2.7 billion, Iridium officials said.

"This is the transaction that ensures the future of Iridium," said chief executive Matt Desch. "We don't need anything more in equity or debt financing until about 2014."

By focusing on military and industrial applications -- such as selling the phones to shipping and airline companies, and marketing its satellite to oil companies to monitor their pipelines -- the company has grown its subscriber base from 63,000 to about 305,000, officials said.

Under the agreement, Iridium will merge with GHL Acquisition, an affiliate of New York investment bank Greenhill & Co. Current Iridium shareholders will own 42 percent of the new company, and GHL shareholders will own 55 percent. The new company will be called Iridium Communications and will apply to be traded publicly on the Nasdaq. Current shareholders of Iridium will receive approximately $77 million of cash and 36 million common shares when the deal closes.

Iridium's current management team will remain in place, and Robert Niehaus, senior vice president of GHL Acquisition, will become chairman.

Terry L. Jones, a founding and managing partner of Syncom, a Bethesda venture capital firm that was among the small group of investors that bought Iridium, said the merger opens the door to development of new applications.

"There are people who thought that Iridium might have gone away and the fact that substantial, sophisticated financial investors believe that there is value here is quite noteworthy," Jones said. 'This opens the door to the future."

-- Anita Huslin

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