Managers of Iridium Satellite LLC and the investment company that plans to buy the mobile satellite services provider said they have seen no signs shareholders who must still approve the purchase have changed their minds because of the global financial crisis.
They said they expected the transaction to close in mid-2009, giving them several months to survive the current financial shocks and demonstrate Iridium's growth prospects before asking shareholders to vote to purchase Iridium rather than receive cash for their shares in the acquiring company, GHL Acquisition Corp. (GHQ) of New York.
GHQ was created in February by investment bank Greenhill & Co. with a $400 million stock offering to hunt for acquisition targets. It announced in late September that its board of directors and Iridium's board had agreed to the purchase, which values Bethesda, Md.-based Iridium at $591 million including Iridium's $131 million debt at the time.
But that was before the ongoing financial crisis that has gripped debt and equity markets. In recent weeks, GLQ stock has suffered along with the broader market, and its warrants' value has collapsed. Some analysts view this as a sign the market does not believe the GHQ deal will be approved.
In a Dec. 3 conference call with investors, GHQ Chief Executive Scott L. Bok said he has no reason to believe that GHQ shareholders are any less favorable to the Iridium purchase than they were in September. Bok also said that GHQ has not taken any particular sounding of investor sentiment.
To win approval for the Iridium purchase, GHQ will need the approval of at least 70 percent of the GHQ shareholders who subscribed to the GHQ initial public stock offering and are not part of Greenhill.
Since the September announcement, many hedge funds and other investors have faced demands for cash from their own investors, forcing the funds to liquidate investments when they can.
Iridium Chief Executive Matt Desch, in a Dec. 4 e-mail in response to Space News questions, said Iridium's continued growth and profitability as demonstrated by the first nine months of 2008 should reassure the prospective owners.
"Iridium is attractively valued and this will serve us in the transaction," Desch said, adding that the movement in GHQ warrants should not be seen as a commentary on Iridium. "It's premature to draw any conclusions about the deal by looking at the stock or warrant price at this time, in these market conditions," he said. "[P]rices move around a lot right before the shareholder vote, and that's probably not going to happen until at least the second quarter of 2009."
Desch also said that, should the GHQ deal fall through, Iridium has other options and no immediate need for cash.
"There were various alternatives available to us when we made the decision [to accept the GHQ offer] and, should it be necessary, we can always reopen these options. However, our operating cash flow is good and we would not anticipate needing any cash that we cannot organically generate for the foreseeable future. So in terms of the GHQ transaction, time is on our side."
In a Dec. 2 filing with the U.S. Securities and Exchange Commission (SEC), GHQ said that when it started negotiating with Iridium in May, Iridium was already in talks with a private-equity investor interested in taking a minority stake in Iridium.
GHQ's SEC filing also says that, in June and July, it canvassed five private-equity investment companies to solicit interest in taking a piece of Iridium, and found no takers.
In the Dec. 3 conference call on Iridium's financial results, Iridium reported that it had 309,000 subscribers, a 37-percent increase from a year earlier, with net income up 8 percent in the same period. Desch said Iridium is quickly penetrating the market for machine-to-machine communications, a potentially large market but one whose monthly subscription revenue is less than what voice subscribers pay.
Desch said indications are that fourth-quarter results will be just as good.
"If there has been a recession in the past year, and we see it all around us, it hasn't been noticed in our results," Desch said. "It hasn't shown up. But we've got to expect that over the next year or two we may not see quite the level of growth we've had before, but I still think we're doing to see pretty significant results."
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