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Iridium secures cash for next-gen constellation

23rd September 2008 - 01:00 GMT | by The Shephard News Team

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MOBILE satellite operator Iridium has embarked on a complex financial manoeuvre that will eventually see it renamed Iridium Communications Inc and benefiting from an injection of around $400 million in new funding.

The Maryland-based company, which is rapidly expanding its presence in the aviation market, will next year name a prime contractor for Iridium NEXT, the second-generation low-Earth-orbit satellite system that it plans to introduce in 2016. In the past it has said it would finance development of NEXT from a combination of current earnings and a variety of financial instruments.

The first of these to materialise is a “partnership,” for want of a better word, with New York-based GHL Acquisition Corporation, which earlier this year raised the $400 million in a “blank cheque” initial public offering (IPO) of shares with Iridium in mind. GHL Acquisition is in fact a vehicle created specifically by New York investment bank Greenhill & Co to facilitate the injection of the IPO proceeds into Iridium. It is 17.5 per cent owned by Greenhill, and the companies have a common chief executive in Scott Bok. Iridium and GHL Acquisition have just announced that in due course they will “merge” to form Iridium Communications.

All these toings and froings are designed to ensure that Iridium is debt-free as it approaches the capital markets in pursuit of further funding for NEXT. “Iridium is the fastest-growing mobile satellite voice and data provider and one of only a handful of major players in its industry, which has significant barriers to entry,” says Bok. “At the agreed transaction valuation it should be compelling to investors in a fast-growing sector with few participants.”

Iridium currently has more than 305,000 subscribers across its five main vertical market sectors, one of which is aeronautical. In the first half of this year its revenues and net income grew 31 per cent and 87 per cent respectively by comparison with the same period in 2007.

Under the terms of the convoluted deal Iridium is valued at $591 million. When the transaction is completed the current shareholders will receive $77 million in cash from the proceeds of the IPO, as well as 36 million shares in the reconstituted company. The remaining $324 million from the IPO will be used pay off Iridium’s present debt of $131 million and deployed for general corporate purposes and capital expenditure.

Iridium’s current shareholders will together be the “new” company’s largest shareholder, with about 42 per cent of the shares, while Iridium’s existing management team, including chief executive Matt Desch, will remain in place.

Iridium NEXT is intended to support new services in addition to the current voice and low-rate data offerings. Combining the existing low-Earth-orbit technology with an IP-based communications architecture, it will also be able to host multiple secondary payloads for applications such as sensing, Earth observation, and command and control. Earlier this year the company said that NEXT would feature a selectively available broadband capability of up to 1Mbit/sec.

The Shephard News Team

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