Iridium has agreed to combine with an affiliate of New York investment bank Greenhill & Co. as part of a strategy to raise $500 million in seed capital for deployment of its next-generation satellite communications network.
Under terms of the agreement, Iridium Holdings will combine with the bank’s GHL Acquisition division and be renamed Iridium Communications. After the anticipated completion of the deal early next year, Iridium will apply for listing on the Nasdaq.
Iridium has more than 305,000 subscribers who use the company’s low-earth-orbit satellite network for voice calls and low-speed data services, available anywhere in the world. The company expects to spend more than $2 billion to build the Iridium Next satellite network to replace the 66 satellites currently used to provide Iridium services.
The transaction with GHL Acquisition values the combined company at $591 million. That’s a significant increase from the $25 million investors paid in 2000 to acquire the assets of Iridium after a highly publicized bankruptcy. Motorola reportedly spent more than $5 billion to build and deploy the original Iridium network in the 1990s but failed to attract customers in numbers large enough to support the business. The Iridium Next constellation, due to be completed before the end of the next decade, is expected to offer improved features, better voice quality and high-speed data capability.
Iridium CEO Matt Desch will continue to lead the combined company, which will remain headquartered in Bethesda, Md. GHL Acquisition senior vice president Robert Niehaus will become Iridium Communications chairman.
Current shareholders in Iridium will receive about $77 million in cash and 36 million common shares of Iridium stock after the deal closes. Around $324 million of remaining cash from the transaction will be used to pay Iridium’s debts, for general company operations and to fund the deal’s transaction costs, the companies said.
“Iridium is the fastest-growing full-service voice and data [mobile satellite services] provider and one of only a handful of major players in its industry, which has significant barriers to entry,” said Scott Bok, chief executive of GHL Acquisition. “It has developed substantial scale in terms of revenue and cash flow, and has an impressive track record of growth across each of its five subscriber verticals.”
One of those “verticals” is aviation, which has become a significant user of Iridium services. Most new business jets are equipped at the factory with at least one, and sometimes several, Iridium satcom receivers, and several airlines have started adding the equipment as a secondary alternative to satcom gear from Inmarsat, whose service has coverage gaps at the poles and is more expensive to use. Iridium voice calls average about $1.50 per minute.
Completion of the transaction is subject to customary closing conditions and FCC approval.