Iridium Satellite is Back and Ready For Liftoff
This could be the greatest comeback in corporate history: a formerly bankrupt company that has seen customers, revenues, and profits all growing at double digits—and a stock that could soon go public through an unusual method.
You might be forgiven for wondering if Iridium Satellite is still around—even the current CEO thought that when first approached by the company. However, this month, many people were reminded that Iridium still flies, after one of its satellites was destroyed by an inoperable Russian satellite.
Motorola made a $5 billion investment in Iridium in the '90s to convince consumers that expensive satellite phones were better than cellphones because they could get a signal anywhere on the planet.
A "net" of 66 Iridium satellites was launched in 1997 and 1998, orbiting the Earth only 500 miles up, much closer than other satellites, cutting down on signal delays. "It's a real thrill..to have Motorola satellites in space!" said Ray Leopold, VP of Motorola Satcom, back in '97.
Problem is, customers didn't buy. The phones were too expensive, and most people had cellular service available. Joe Six-Pack wasn't living in Antarctica. Iridium went bankrupt in 1999.
Turns out Iridium wasn't a bad concept, though, it just had a bad business model.
The company was bought out of bankruptcy in 2001 for $25 million — just one half of one percent of Motorola's cost.
"When I heard it got bought for $25 million, I wasn't surprised," says CEO Matt Desch, a telecomm veteran who says he knew that Iridium had value, at least in the hardware (watch video at left). However, "When they contacted me and said 'Would you be interested in Iridium?' I said, like everyone else always does, 'Is Iridium still around? Are they doing well?' "
He learned, in fact, that Iridium was doing very well. Since 2001, Desch says the company has averaged 30 percent annual earnings growth, though that has slowed recently as the company spends money to develop a new generation of satellites. There are now 320,000 customers, with 2008 revenues of $321 million and profits of $54 million, both up 23 percent.
The firm stopped focusing on consumers and now markets to commercial and government customers, like the military, maritime, and aviation industries. Its fastest growing segment is machine-to-machine communications and tracking around the planet. Customers include UPS , FedEx, Schlumberger , Halliburton, and Garmin .
"The market that we're growing in has grown historically 10 to 15 percent per year," Desch says, admitting the market may slow in the current economy. Still, "We've always grown considerably faster than that. Even if we grow at the market level, we will be doing quite well." (Learn more about the "old" Iridium in the video at left.)
Last year, Iridium agreed to be taken over by a Special Purpose Acquisition Company (SPAC) launched by Greenhill & Co., called GHL Acquisition Corp.. A SPAC, also known as a "blank check company," allows investors to put in cash with the purpose of searching and buying companies they'd like to take public within two years. Greenhill hopes to take Iridium public before the end of the second quarter, raising $500 million to develop a new generation of satellites.
Why a SPAC?
"We looked into private equity, or an IPO," says Desch. "We realized that that market was changing, and despite being a successful and fast growing company, that market was probably going to be closed to us for the next year or two." He says a SPAC will bring in the money necessary to grow, which "I don't see how we could've raised any other way."
However, some shareholders in the SPAC may vote to delay going public because of market conditions, fearing the $10 a share they're guaranteed may drop as soon as shares start trading. Desch says Iridium will be fine even if there is a delay, but with plans to have new satellites in orbit starting in 2014, the company will need money sooner rather than later.
In fact, Iridium will soon choose between Lockheed Martin, and Thales Alenia Space to manufacture the new satellites, in a deal that could eventually total $2 billion.
"I would have to say that this is the largest commercial space system development in existence today," says Lee Demitry, Executive VP of Iridium NEXT.
The company also plans to sell space on the new satellites to other firms looking for extra capacity.
"It'll be an additional revenue source for us," Demitry says. But there may be a huge change in the new satellites. The current "birds" create "Iridium flares" that can be seen from the ground as the satellites reflect the sun's rays while flying over. You can see it with the naked eye at dusk or dawn, because the satellites have a unique "V"-shape.
Several Web sites track the phenomenon. However, one of the competing entries for the new generation of birds doesn't have that design, and will not reflect sunlight. The calls may be clearer, but the flares will be gone.