GHL Buy of Iridium Said to Prove It Can Survive
With financial markets enduring their biggest upheaval in decades, GHL Acquisition Corp.’s takeover of Iridium is seen as a validation of Iridium’s business strategy, said industry sources. “This deal proves they can survive,” Tim Farrar, president of Telecom Media and Finance Associates, said.
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The deal values Iridium at $591 million. Of that, $400 million was raised by GHL Acquisition Corp., a special purpose acquisition company created in February by investment banking firm Greenhill & Co. GHL will pay off $131 million in Iridium debt. Greenhill will invest $22.9 million more to satisfy some Iridium owners’ need for cash to pay taxes, said GHL Acquisition CEO Scott Bok. Iridium shareholders will get $100 million cash and shares worth $360 million. Iridium called the deal “a sponsored [initial public offering].” Once the deal is completed, the company will seek listing on the Nasdaq stock exchange.
Other mobile satellite services sector players may have to re-evaluate their long-term plans now that Iridium seems to be surviving, sources said. Many MSS industry watchers have urged and expected consolidation, but Iridium’s participation in a MSS merger seems less likely now, they said.
The FCC is expected to approve the deal, industry and regulatory sources said. They expect the regulator to see the transaction as a pro-forma change of control, they said. The deal must also pass antitrust muster.
Iridium needed to make the deal to corral enough cash to prepare for its second-generation constellation, said Bok and Iridium CEO Matt Desch. Iridium pegs the constellation’s cost at about $2.7 billion, Desch said. Besides current revenue that will continue with Iridium Next, as it calls its second generation, Iridium is seeking rideshare partners focusing on the Earth observation sector, Desch said. Fixed Iridium costs all involved the constellation’s construction, Bok said, indicating that as a positive for GHL.
Iridium’s lack of spectrum makes it less attractive to some investors, like Harbinger Capital Partners, lately a heavy MSS arena investor, specifically controlling SkyTerra and proposing to buy Inmarsat. Harbinger’s thesis revolves around spectrum value, in this instance an unworkable idea, since Iridium only controls about 8 MHz, Farrar said. “We don’t spend much time talking about spectrum,” Desch said, preferring instead to focus on “operating the company.”
Iridium has about 305,000 subscribers. Churn is very low, Desch said. “When customers get the service, they stick with the service for the long term,” he said. Since Iridium isn’t in the consumer business, Desch doesn’t worry about the economic downturn doom the company’s plans, he said.
Iridium and GHL will be precluded from selling out for a year after the deal closes, except for a secondary offering after the first six months, the companies said. The deal is expected to close next year.
The deal could die if more than 30 percent of GHL shareholders cash out. “We don’t expect that to be the case,” Bok said in an investor call. GHL is holding $120 million to pay shareholders that do cash out.
Two Greenhill executives will join Iridium’s board and will nominate two independent members. Robert Niehaus, GHL senior vice president, will become Iridium Communications chairman. Desch will remain as CEO and other executives are expected to stay, the companies said.
Greenhill has invested in other telecommunications companies, including acting as the “sole financial advisor” to Bell Canada Enterprises’ private-equity buyout, according to its 2007 annual report.