WSJ article on McCaw / no rescue of Iridium.
March 6, 2000
McCaw Says He Won't Rescue Iridium;
Its Satellites May Soon Face Their End
By SCOTT THURM
Staff Reporter of THE WALL STREET JOURNAL
Billionaire investor Craig McCaw said he won't rescue the troubled Iridium
LLC satellite-phone system, raising the prospect that Iridium's satellites will
soon burn up -- literally.
The surprise decision, which skeptics think could be a negotiating tactic, came
after Mr. McCaw spent months probing Iridium's technology and finances.
Mr. McCaw helped fund Iridium's operations for the past several weeks, and
recently outlined plans to seize control of Iridium and combine it with ICO
Global Communications Ltd., another satellite-phone venture.
Mr. McCaw's withdrawal leaves the $5 billion
Iridium project, which has been operating under
bankruptcy-court protection since August, on the
verge of liquidation. The most recent round of
temporary financing expires Monday, and there
are no rescuers in sight. In papers backing Mr.
McCaw's bid last month, Iridium said he was
"the only credible candidate" to prevent
liquidation.
Friday, Iridium said it had received "expressions
of interest" from other potential buyers and
expected to "attract additional qualified
proposals." A spokesman for prime contractor
Motorola Inc., which has lost several billion dollars on Iridium, reiterated that
the company would not provide additional financing by itself.
Officials at both Iridium and Motorola declined to
speculate on what would happen to Iridium and its 66
satellites if no savior is found. Analysts said Motorola
would face a difficult choice between continuing to
operate the system and taking the satellites out of
orbit, at a cost of as much as $70 million. The
satellites would burn up in the atmosphere before they
fell to Earth, the analysts said. In any case, it will take
several weeks to shut down the system, so Iridium
phones are likely to keep working for a while.
Iridium began service in late 1998 and immediately
faced criticism that its phones didn't work very well
and were prohibitively expensive. The global
consortium hoped to have close to one million
subscribers by now; instead, it has 50,000. In January, Iridium reported a loss
of $112.6 million on revenue of $1.5 million.
Still, it isn't entirely clear why Mr. McCaw walked away from his proposed
$600 million rescue plan after a long flirtation. In a statement, Mr. McCaw's
Eagle River Investments LLC said it preferred to focus on moving computer
traffic, rather than telephone calls, through space, via ICO and the planned
Teledesic project.
"After careful examination of Iridium's technologies, we determined that there
are closer synergies between ICO and Teledesic," Eagle River President Dennis
Weibling said in a statement.
Tim O'Neil, an analyst for Wit Soundview, said some of Iridium's satellites are
ailing, meaning some calls aren't completed. Mr. O'Neil said he raised these
issues in a meeting Tuesday with aides to Mr. McCaw, who acknowledged
they were aware of the problems.
Losing Orbit?
Events in the history of global wireless company Iridium
1985: Project is conceived when a Motorola executive's wife's cell
phone does not work in Caribbean, suggesting the need for a global
wireless telecommunications system.
1990: Iridium system is announced, aiming to link land-based telephone
networks with satellites.
1992: Iridium signs a $3.37 billion contract with Motorola for system
development and delivery.
1997: Iridium debuts on Nasdaq with a $240 million offering.
1998: After some initial rocket-related launch difficulties, final
constellation of 66 satellites is completed. Commercial phone service is
launched, but potential customers immediately complain about high
costs and bulky phones.
March 1999: Iridium announces that it will miss first-quarter targets for
subscribers and revenue, violating loan covenants. The company is
granted a two-month reprieve by lenders. CFO quits.
April 1999: CEO Edward Staiano resigns abruptly.
August 1999: Shortly after creditors file an involuntary Chapter 11
petition in New York, Iridium files for protection from creditors under
Chapter 11 of the federal bankruptcy code in Delaware.
February 2000: An investor group led by Craig McCaw agrees to
provide $75 million to keep Iridium afloat until June 15, while Mr.
McCaw works out a restructuring plan.
March 3, 2000: Mr. McCaw and his group pull out, leaving the future
of Iridium in doubt.
Moreover, Mr. McCaw faced continued legal obstacles to seizing control of
Iridium, primarily from bondholders, who wouldn't have received any money
in Mr. McCaw's refinancing scheme. A group of bondholders recently won
approval to sue Motorola for $3.5 billion, for its alleged part in Iridium's failure.
Motorola declined to comment on that matter.
"This puzzle he was putting together was starting to sound very complex," said
Marco Caceres, a senior space analyst with consultant Teal Group, Fairfax,
Va. "It probably sounded like more trouble than it was worth."
Bondholder Gary Himber says he and others aren't disappointed that Mr.
McCaw is walking, because "there was nothing in the McCaw deal for
bondholders."
Banks that had lent Iridium $800 million stood to recoup about 30% of that
under Mr. McCaw's plan. A spokesman for Chase Manhattan Corp., the leader
of the bank group, declined to comment on Mr. McCaw's announcement.
Mr. O'Neil and others raised the prospect that Mr. McCaw's announced
withdrawal may be a ploy to win a better deal from the banks or from
Motorola. "It's not clear if he's backing out or it's a negotiating technique," said
Armand Musey, an analyst with Banc of America Securities.
"It's not a negotiating ploy," replied Bob Ratliffe, a spokesman for Eagle River.
Mr. Ratliffe said Mr. McCaw walked away from Iridium so he could stay
focused on ICO and his planned Teledesic project.
Teledesic plans to use satellites to create a high-speed "Internet in the sky." But
the $10 billion-plus project has been stalled by investor apathy in the wake of
the bankruptcy filings by Iridium and ICO. Teledesic has been in talks with
Motorola since June on reconfiguring the planned 288-satellite constellation.
--Nicole Harris and Leslie Cauley contributed to this article.
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