Large Iridium Shareholder Calls for Sale of Company

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KOUROU, French Guiana — A large shareholder in mobile satellite services provider Iridium Communications has asked the company to sell itself wholly or partially, saying Iridium management has consistently ignored the interests of its shareholders and been unable to estimate the cost of its second-generation satellite constellation.

In a letter to Iridium Chairman Robert H. Niehaus, Avenir Corp. of Washington said Iridium’s March 28 decision to increase its planned share offering by 50 percent, to $225 million, is the latest example.

McLean, Va.-based Iridium, which is midway through development of its $3 billion Iridium Next satellite constellation, told investors Feb. 6 that it would need to raise $150 million. It then increased the offer in late March.

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In a document filed April 1 with the U.S. Securities and Exchange Commission (SEC), Avenir Chief Executive Peter C. Keefe said Iridium management has consistently underestimated how much it will need to complete Iridium Next.

Further, Keefe said, Iridium has alternatives to issuing new shares — such as a rights offering of discounted shares to existing shareholders — that would not dilute existing shareholders’ equity in the company.

Keefe said he does not dispute that Iridium needed to raise more than the originally planned $150 million, and his letter suggests Avenir had previously told Iridium that $150 million was insufficient given the capital requirements of Iridium Next.

But the fact that Iridium was unable to settle on a realistic amount to be raised, and then had to backtrack and return to the market with a higher-value share offering, shows the company is unable to manage its future cash needs.

“The company has consistently underestimated its capital requirements and as a result is once again being required by a nervous banking group to raise equity — for the second time in 18 months,” Keefe said.

Iridium has said that a revenue shortfall in 2013, in part due to a defect on a shipboard system for maritime communications, would oblige the company to renegotiate its loan covenants with the banking consortium whose commitment was backed by the French export-credit agency, Coface.

Iridium told shareholders in late February, and reiterated at a conference in Washington in mid-March, that negotiations with the Coface group were advancing well, with no major obstacles, and should be completed in the coming months.

Keefe said in his letter that Avenir owns about 3.3 million Iridium shares, equivalent to 4.3 percent of the company’s outstanding shares. Iridium stock, listed on the U.S. Nasdaq exchange, is trading around 25 percent below its initial public offering price in 2009, despite solid gains in the overall stock market since then.

“It is clear that Iridium’s board has lost the confidence of its shareholders,” Keefe said. “It is time for the company to seek outside help regarding alternatives ranging from a minority investment by a strategic partner to the sale of the entire company with the objective of maximizing per-share value for existing shareholders.”

Iridium Next satellite production has been delayed by a couple of months, and launches are now scheduled to begin in the second quarter of 2015 and continue through 2017. The company has spent about $1.3 billion of the expected total of $3 billion needed to deploy the network of 66 operational satellites plus spares.

The company told investors in late February that it expected to increase its 2013 service revenue of $382.6 million by 2-4 percent in 2014, with operational EBITDA — earnings before interest, taxes, depreciation and amortization — to increase by 4.5 percent.

Iridium declined to comment on the Avenir letter.

 

Follow Peter on Twitter: @pbdes


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