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Technology Stocks : IRID - Iridium World Communications IPO Announced! -- Ignore unavailable to you. Want to Upgrade?

To: Bob Rudd who wrote (1852)	5/27/1999 3:50:00 PM
From: Marty Rubin	Read Replies (1) \| Respond to of 2693

Magic 25 May 27, 1999 What is Motorola's Exposure to Iridium? By Craig Schneider (5/27/99) Motorola (NYSE:MOT - news) traded off $7 on Tuesday, only to rebound Wednesday, as investors digested a newswire article suggesting that troubles with the Iridium (NASDAQ:IRID - news) and Teledesic satellite systems will negatively impact its operational performance and earnings growth. Iridium, a global-satellite phone company is 19% owned by Motorola and has debt of about $3.02 billion as of March 31. In the event of bankruptcy, banks are the first to be re-paid, bondholders come next, and then equity holders. "If all of Motorola's present Iridium commitments in backing and obligations to sub-contractors and employee severance and closing facilities are lost in bankruptcy, it would be worth about $2 billion," says Charles DiSanza, a Gerard Klauer Mattison analyst. He also estimates that Motorola has $800 million reserved against that, leaving $1.2 billion left over, or about $2 per share before tax considerations. "I don't think this stock should be whipped around based on a $2 risk," says DiSanza. Eric Zimits of Hambrecht & Quist agrees. "Our revenue and earnings forecasts have never included any positive contribution from the Iridium or Teledesic satellite projects and would therefore only increase if Motorola exited these businesses," he notes. Zimits also believes the much-discussed struggle and possible failure of Iridium is already reflected in both stocks. He expects with a failure, Motorola would incur a one-time charge of $500-$700 million, net of reserves, with estimates unchanged. If Iridium goes bankrupt, DiSanza figures that the $500 million per year that Motorola receives from ongoing revenue for operating and maintaining Iridium would be lost. "That might have $100 million in profit built into it," he adds. Factoring in the $800 million, he figures that by giving up on Iridium, Motorola would be giving up about $1.3 billion in annual revenue potential. Therefore, DiSanza says, it might be inclined to put in more money, if that could get Iridium over a hump. Of course, to even consider that move, Motorola needs to see a revised business plan that would have to make sense. Also, the board would have to agree, and whatever funds Motorola applies from its balance sheet would only amount to 20-30%, or what's required of its risk, given its 19% stake in the company. In other words, if Iridium requested $1 billion to see it though to a cash flow positive business, Motorola would go in no more than $300 million, says DiSanza. "They're not going to put their balance sheet up." Under this assumption, $300 works out to $0.50 per share on a pre-tax basis. But watch that first step for a revised business plan. It's a doozy. A resolution is hard to come by considering Iridium's chief executive, financial chief and marketing chief all left in the past two months. "Who helps with the business plan?" jokes DiSanza. He expects that if the pieces don't fall into place, Motorola will take the write-off for $2 and its stock will climb to $90. "The market would just be happy if it put Iridium behind them," he concluded. Zimits adds that contrary to inferences made in the Federal Filings Business News article, Motorola has already written-off its entire Iridium equity investment and is therefore not required to recognize any portion of its losses. Analyst: Craig Schneider Updated on 5/27/99 with MOT trading at $82. Recommended 11/16/98 at $58. (http://fnews.yahoo.com/iionline/99/05/27/magic25a_990527.html)