[Satellite News 09-23-08] Iridium signed an agreement with GHL Acquisition Corp. Sept. 23 that will eliminate Iridium’s debt of about $131 million and allow the mobile satellite service provider to develop its next generation satellite constellation, Iridium Next. 
    As part of its efforts to secure the financing needed to develop its next-generation satellite constellation, Iridium discussed acquiring its competitor, GlobalStar, Iridium Vice President Don Thoma told Satellite News. Instead, after a nine-month assessment period, Iridium decided a better option would be to allow investment bank Greenhill and Co. and affiliate GHL to acquire Iridium to form Iridium Communications Inc. The agreement, will eliminate Iridium’s debt of about $131 million and allow the mobile satellite service provider to develop its Iridium Next constellation, the company said.
    GHL’s stockholders will own about 55 percent of the new Iridium, while owners of current Iridium stock will receive about $77 million of cash and 36 million common shares in the new entity. The agreement does not rule out a future Iridium-Globalstar combination, Thoma said. “We will always look at opportunities associated with improving the position of Iridium and improving the capabilities of the services for our customers,” he said.
But the deal, which set the enterprise value of Iridium at about $591 million, will make such a combination more difficult, said industry analyst Tim Farrar, whose clients include Iridium. If Iridium “decided it was going to pursue a merger with GlobalStar, the announcement provides a pretty modest evaluation on what Iridium would be willing to pay for it,” he said “And even though Iridium is being valued at $591 million with more than three times the revenue of Globalstar, it doesn’t necessarily accelerate that process. It would prevent any merger with Globalstar from happening unless there was a situation where Globalstar had no choice. That situation is going to be driven by the timing and success of Globalstar raising funds.”
Globalstar’s current constellation is suffering from degraded performance that is leading to some loss of service. Globalstar signed a contract with Thales Alenia Space in November 2006 for 48 second-generation satellites and signed a contract with Arianespace in September 2007 to launch the satellites beginning in the second half of 2009.
    Dean Hirasawa, a Globalstar spokesman, declined to comment on any potential combination.
    In terms of financing Iridium’s next-generation satellite constellation, Farrar stated the acquisition GHL deal was not a make-or-break situation for Iridium. “It does not completely ensure the completion or success of the Iridium Next constellation, but it helps,” he said. “What this backing does do is provide a little bit more certainty for shareholders.”
    Prior to closing of the transaction, Iridium may make up to $15 million of further distributions to its existing shareholders. Greenhill, after investing about $23 million in Iridium convertible debt prior to completion of the transaction, will receive about 2.3 million common shares of the new company.
Robert Niehaus, senior vice president of GHL, will become chairman of Iridium Communications. GHL also will name three directors to Iridium’s executive board — Scott Box, CEO of GHL Acquisition and two directors from Greenhill and Co. Five directors from Iridium will remain on the board, and Matt Desch will continue to serve as Iridium Communication’s CEO.
GHL and Greenhill “will have oversight, and we welcome that,” said Thoma.
     Completion of the transaction is subject to U.S. Federal Communications Commission approval.