Bloomberg. CEO's Shock Departure Batters Iridium Again
By Josh Fineman at Bloomberg News
23 April 1999
Edward Staiano, the chief executive of cash-strapped global
satellite-telephone pioneer Iridium LLC, has resigned after
sales growth missed forecasts and its shares plunged.
Iridium named John Richardson, the head of its African
subsidiary, as interim chief executive. A committee was
appointed to find a successor for Staiano, also the board's
vice chairman, who became CEO in January 1997 and led
Iridium's efforts to build the system. Now he's getting some of
the blame for Iridium's inability to attract enough subscribers
to pay off its debt.
Backed by a group led by Motorola Inc., Washington-based
Iridium went public at $20 a share in June 1997. Its price more
than tripled within a year, boosted by the promise of offering
phone service anywhere. Now Iridium's phones are in short
supply and it lacks a trained sales force. Its chief financial
officer, Roy Grant, quit last month and banks gave Iridium 60
days to meet sales goals or risk defaulting on an $800 million
credit line.
Staiano "clearly did a great job of putting up the
constellation," said Armand Musey, an analyst at C.E.
Unterberg Towbin, who has a "buy" rating on the stock. "The
marketing has been a disaster." It might be the end of this
year, he said, before subscriber numbers really showed
positive results, although there was some possibility that
things would improve by the summer.
Staiano, Musey commented, had almost certainly been
pushed. "Ed is a very stubborn person," he said. "I really
don't believe he would have stepped down."
Iridium's spokeswoman, Michelle Lyle, reinforced this
impression. Staiano's resignation, she said, had been
prompted by "a difference of opinion by the board and Ed
over strategy moving forward."
Earlier this month, Staiano said it will take longer than
expected for the company to generate enough revenue to
cover expenses. He also said Iridium needs about 500,000
subscribers to achieve that goal, yet the company had just
3,000 subscribers at the end of last year. Iridium's cash needs
this year total $1.65 billion, according to a March regulatory
filing. Iridium has said it may need to seek additional financing
if its revenue this year doesn't close a $310 million funding
gap.
As the company's financial position soured, its stock tumbled.
Iridium, down 1 9/16 today to 17 1/16, fell about 73% in the
past year.
The management shakeup "will put negotiations with the
banks in a little bit of a difficult position," Musey said. "It also
throws the new CFO search up in the air."
But even so, Musey said, Iridium was pioneering a new
market, so everyone with an interest in that market wanted
them to be successful.
Staiano, 62, was an executive vice president at Motorola when
he joined Iridium. The company's daily business now will be
managed by an executive committee headed by Richardson.
The committee also includes Alberto Finol, chairman of Iridium
SudAmerica Corp.; John Mitchell, former vice chairman of
Motorola Inc.; Richard Lesher, a director of Iridium World
Communications Ltd. and former president of the U.S.
Chamber of Commerce; and Yoshiharu Yasuda, president of
Nippon Iridium Corp.
"Ed did a good job of getting them to where they are," said
John Bensche, an analyst at Lehman Brothers Inc., who has a
"buy" rating on the stock. "I think now is the time to bring in
more of a guy with a marketing bent."
Motorola, which has a 19.5% stake in Iridium, supports the
management change.
"We will be reviewing Iridium's business plan as it evolves,"
the company said in a statement. "Additional financial support
would depend on many factors including the content of its
revised business plan, the outcome of negotiations with its
banks and approval of Motorola's board of directors."
Richardson, who most recently was chairman and chief
executive of Barclays Bank-BZW Asia, a unit of Barclays Plc,
has led troubled companies through reorganizations, a fate
Iridium might face, some analysts have said.
When CEO of Hutchison Whampoa Ltd. in Hong Kong, he led
the company through extensive corporate restructuring in the
late 1970s and early 1980s, Iridium said in a statement. He also
was chairman of the management committee of the U.K.'s Exco
Plc, which went through a restructuring in the early 1990's.
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