Iridium Satellite deal will boost Phoenix-area partners
Phoenix Business Journal - by Patrick O'Grady
A decade after it sought bankruptcy protection, Iridium Satellite LLC is on the verge of becoming the next big public option in satellite communications -- and, in the process, benefiting other local companies.
The company will go public Sept. 29 through a merger with publicly traded GHL Acquisition Corp., a venture formed by New York-based investment banking firm Greenhill & Co. to buy private businesses. GHL shareholders approved the deal Wednesday.
Iridium, formed by Motorola Inc. and later spun off, has seen a resurgence in the use of its communications system. Officials have been looking for funding to launch the company’s upgraded network of 66 satellites.
Iridium is based in Bethesda, Md., but maintains its business operations in Tempe, employing about 200 workers through its connections with Boeing Co., which controls the satellite network, and another group at a facility in the Arizona State University Research Park.
The merger is “really a huge milestone for the company,” Iridium CEO Matt Desch said Wednesday evening after the vote had been tallied.
The merger is expected to add more than $200 million in capital to Iridium’s coffers, which will enable the company to pay down debt and develop its new constellation of satellites for launch in 2014. Along with the merger, the company issued an additional 16 million shares at the $10 price, netting it $160 million at least.
“It’s a significant infusion into the company,” Desch said.
Once merged with GHL (ASE:GHQ) since its initial public offering in 2008, the company will be called Iridium Communications Inc. and be traded on the Nasdaq under the symbol IRDM. The company already was trading under that symbol Thursday morning at about $10 a share.
The move caps a long journey for Iridium from the ashes of Chapter 11 bankruptcy in 1999. Motorola launched the satellite system in 1997 and 1998 with an eye toward providing communications anywhere on the globe.
The project was far from a success, reporting $6 billion in losses, including a $3.5 billion hit for Motorola. The company sold Iridium in 2000 for $25 million to a group led by Dan Colussy, a former president of Pan American World Airways as well as president and CEO of Canadian Pacific Air Lines Ltd. and aerospace company UNC Inc.
Since relaunching its network in 2001, the company has built its customer base to 347,000. It raked in $82.7 million in revenue in the second quarter of 2009, according to information from Iridium.
Tempe-based KinetX Inc., one of Iridium’s largest contractors, specializes in communications, spacecraft payload design and orbital operations. It is helping to develop the Iridium Next generation of satellites, and if that $2.7 billion program moves forward, KinetX could benefit through design and mission segments.
Lockheed Martin Corp. and Thales Alenia Space are competing for the contract to build replacement satellites for the current constellation of 66, plus several more, for Iridium Next. The current plan is to launch the new satellites in 2014, and Desch said the company is at most three to four months away from selecting a contractor.
KinetX also was a contractor on ground control systems and the satellite constellation when Iridium was originally launched, and it has ties to the program going back to the company’s inception in 1993.
The merger “gives them a whole bunch of liquidity,” said Glenn Williamson, CEO of Nest Ventures LLC and chairman of KinetX.
The deal affects more than 200 Iridium partners that supply components and operations for the satellites, Desch said. It also affects the U.S. military and other organizations that use the phones.
“There’s a whole ecosystem of partners that are important to Iridium,” he said.
Gina Martinez, general manager of Chandler-based World Communications Center, which specializes in sales and renting of Iridium phones, said the merger is a positive move for the network and her company.
“I think it’s going to help us in getting the name out there for people who will rent or buy the phones,” she said.
Iridium offers one of several satellite phone options. When the system launched, its adoption rate wasn’t good because most people were migrating to land-based cellular services. There still is a need for satellite communications, particularly for maritime and military uses, and for travel to parts of the globe not served by cell sites, Martinez said.
“There’s plenty of places where there’s no cellular service and no land lines,” she said.
Although rates have come down from the $8- to $9-a-minute level when the system launched, satellite communications still are a bit pricey at $1.25 to $1.75 a minute. For customers who use it, from emergency first-responders to oil-rig workers, the need for connection is great, Martinez said.
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