Iridium Turnaround Continues With IPO

$200 Million Will Replace Satellites

Bethesda-based satellite firm Iridium, a company that once crashed and burned in spectacular fashion, continued its turnaround with a public offering of stock on Tuesday.

Iridium said it plans to use the estimated $200 million raised from the deal to begin replacing its satellites, originally launched 12 years ago. The firm, which reported a profit of $108 million last year, owns 66 operational satellites that fly in low Earth orbit. The company intends to replace those satellites starting in 2014.

At the end of 1999, Iridium sought bankruptcy protection after burning through $5 billion in capital from investors including Motorola. In recent years, the company, which was acquired by investors in 2001, has built a customer base that includes the U.S. government and maritime firms. The U.S. military uses the company's service to connect personnel in war zones; maritime companies use the service to track ships and shipping containers.

Iridium, now traded on Nasdaq under the ticker symbol IRDM, didn't go public in the conventional way. A year ago, the company -- then known as Iridium Holdings -- agreed to merge with GHL Acquisition Corp., a "special-purpose acquisition company" formed by Wall Street investors with the intention of buying another company. Such "blank-check companies" have been an increasingly popular means of financing in recent years as banks have become resistant to making large loans.

The acquisition by GHL received the Federal Communications Commission's blessing last month, and the companies completed the transaction Tuesday with the simultaneous offering of new Iridium shares. The stock closed at $11.55 Tuesday, giving the company a market value of $962.7 million, according to Bloomberg.

Iridium chief executive Matthew J. Desch said that the deal brought in more than a traditional IPO likely would have. "This generates more cash for the company and puts us on a solid financial footing," he said in an interview.

Investors have recently poured $8 billion into the coffers of satellite firms, said Tim Farrar, president of TMF Associates, a consulting company specializing in the satellite industry. That's a lot of money for an industry that brought in $1.2 billion in revenue last year. While Tuesday's announcement is a positive one for Iridium and its customers, Farrar said, there is some concern about overinvestment.

"It does raise the risk of overcapacity in this industry, which already was a big worry for some people," he said. "To justify that level of investment, you'd have to see very rapid growth."

Iridium has 347,000 subscribers worldwide. Despite the recession, the company has seen larger profits this year than last, Desch said.

Government customers account for nearly a quarter of the company's revenue, and analysts pointed to that bond as an especially important one for the company. "The relationship they have with the government is a very strong one and not likely to diminish," said Andrea Maleter, technical director at aerospace consulting firm Futron Corp.

Some analysts have said that satellite phone pioneers, like Iridium and its former rival GlobalStar, originally failed because they underestimated the speed at which terrestrial-based cellphone networks would catch on. Consumers, meanwhile, never had much interest in the clunky and expensive satellite phones offered at the time.

Two local firms, TerreStar and SkyTerra, will soon be trying to enter the satellite phone market with sleeker devices that will meld terrestrial phone service with satellite phone service. The two Reston-based companies will offer competing services across the United States. TerreStar announced Tuesday that its service, through a partnership with AT&T, will debut in the first quarter of 2010.