Greenberg. Iridium's Stock Price Is Back, and So Are the Iridiots
By Herb Greenberg
Senior Columnist
6/25/99 6:30 AM ET
Fried-Day:
From an Iridiot: "Are you ready to eat your last negative
words about Iridium (IRID:Nasdaq)??? Have you seen what
it's doing lately? Looks pretty green to me in them thar hills,
stars, whatever!!"
Yeah, whatever, if you wanna be fooled into thinking a rising
stock price, over the short term, validates your investment
philosophy, that's your choice. The best guess, regarding
the recent rise in Iridium World Communications, which
leaped another 7/16 yesterday to close at 13 1/2, is
short-sellers have been forced to cover their positions as
investors have demanded the return of their borrowed shares.
The apparent short-covering, along with bullish outright
buying, has coincided with the company's announcement on
Monday that it planned to cut the price of its service and
introduce a flat rate for international customers.
However, Iridium is hardly out of the woods: The company is
expected, fairly shortly, to propose a restructuring plan that
will satisfy banks that are on the hook for $800 million and
holders of its junk bonds, who've seen the value of their
investment plummet by more than 70%. If the banks and
bondholders don't think the company can generate enough
money to cover existing debts, they may not go along with
any plan, especially if it benefits holders of the common
stock.
Worst-case scenario short of a bankruptcy for stockholders,
says one bondholder, is a plan that would leave stockholders
with a smaller piece of the company. "They have to make
this interesting for bondholders," the bondholder says. He
adds that bondholders have already informally spoken and
have hired a law firm. The bondholders "won't have their value
compromised to rescue the equity."
In the meantime, as I wrote in May: Don't be fooled by
Iridium World's market value, which yesterday was around
$200 million. Investors in Iridium World, the publicly traded
company, are really buying a company that has a 13.25%
stake in Iridium LLC, the real satellite company, which
doesn't trade but has a market value of $1.5 billion (down
from $2 billion when I last wrote about it). That's $1.5 billion
(not including more than $2 billion in debt) for a company
whose financial future is up in the air.
Liquidation rights: Couldn't help but notice the sale of
shares in American Eagle Outfitters (AEOS:Nasdaq) by
the controlling Schottenstein family of Ohio, which just
happened to show up the same day American Eagle, a
favorite of teens, disclosed that it'll be the official clothing
supplier for the Dawson's Creek TV show.
Remember, these are the same Schottensteins whose
family made their money in the liquidation biz. Nobody
knows better than they do about buying low and selling high!
(American Eagle's stock, in the past year, has more than
doubled; it's up eight-fold in the past two years.)
A wholesale liquidation? CFO Laura Weil says no. She says
the Schottensteins have cut their stake from 60% to nearly
40% but intend to maintain control of the company. "That
really is the truth," she told my assistant, Mark Martinez.
"They own over 20 million shares; they are not planning to
sell more than where they are today."
Still, why have they sold so much? Weil says the
Schottensteins were advised they didn't have to own 60% of
American Eagle to maintain control of it, so why own 60% if
you don't have to? (Try telling that to the shorts, who believe
that in addition to knowing about liquidations, the
Schottensteins know a thing or two about the fickle nature of
teenagers when it comes to fashion.)
CHS chatter: Yesterday's item on a $50 million investment
in CHS Electronics (HS:NYSE) by Computer Associates
(CA:NYSE) didn't win this column any new fans in the CHS
community of investors. One caller and one emailer were
particularly perturbed that I didn't mention that as part of its
deal CHS has the right to buy the securities for cash if
Computer Associates moves to convert the shares at a price
of less than $5.50 per share.
OK, I've mentioned it. There! But in a report to clients, Credit
Suisse First Boston analyst Joel Pitt said he believes "it's
relatively unlikely" the company would "be in a position to
exercise this option in circumstances to which it applies."
To which the CHS chatterers say (and this is paraphrasing):
"How can you possibly say that? The company has $136
million in cash?"
Ah, but it did have $136 million in cash. That was a snapshot
as of the end March 31.
Hard to say what it has today. After all, if cash were no
object, why would the company have been in such a rush to
do such a desperate type of financing?
Cramer and me: I merely question JJC's comments for a
day or two and suddenly I'm assailed by Cramerophiles for
attacking their precious Jim. "Why do you hate him so
much?" "Don't you know you wouldn't be here if it weren't for
him?" "He's the only thing I read on TheStreet." (That last
one is always my favorite because if he's the only thing you
read what are you doing reading me?)
Anyway, here's the deal: I don't hate Jim. I like Jim. I never
miss a word of what Jim writes. He is smart, engaging (more
in person than in writing, if you can believe that) and has the
integrity of the Empire State Building.
It's just that, on some topics, he's misguided. But of course,
at times so am I, big guy, so that makes us even.
Herb Greenberg writes daily for TheStreet.com. In keeping
with TSC's editorial policy, he doesn't own or short individual
stocks, though he owns stock in TheStreet.com. He also
doesn't invest in hedge funds or other private investment
partnerships. He welcomes your feedback at
herb@thestreet.com. Greenberg also writes a monthly
column for Fortune.
Send feedback to letters@thestreet.com.
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