Castle Harlan Inc., a New York City-based merchant bank, pulled away from its fellow contenders last week in the race to save Iridium L.L.C. when Iridium filed a motion in the U.S. Bankruptcy Court for the Southern District of New York to gain approval to sell its assets to the bank for $50 million.
The U.S. Bankruptcy Court in Manhattan will consider Iridium’s request at a hearing Wednesday.
Castle Harlan is among a slew of companies looking to acquire Iridium’s constellation of 66 low-earth-orbit satellites and other infrastructure. But according to Iridium spokesman Bob Barry, Castle Harlan stands out because it has the bite to back up its bark.
“Castle Harlan is a very serious player with a clear ability to close transactions like this. They are first among equals. Other people have said they are willing to purchase but are not as advanced in terms of their ability to show they have the money in place,” Barry said.
In addition to the $50 million in cash, Castle Harlan will pay $900,000 per month from the time the court approves the sale until the deal closes, as well as 5-percent in equity to the secured lenders.
The bank has until July 21 to complete the due diligence to determine the viability of Iridium’s business plan and to talk to the company’s gateways and the U.S. government to ensure the operation of the existing satellites following the close, if any, of the acquisition. Castle Harlan also must work out a deal with Motorola Inc., which still has a large stake in Iridium.
Motorola has been in discussions with Castle Harlan for the past few weeks and is hoping to have a deal worked out by the end of the month, according to Scott Wyman, spokesman for Motorola.
Wyman would not disclose details of the discussions, but said that although Iridium was granted Chapter 11 bankruptcy protection in August, Motorola has continued to provide the resources to maintain the satellite constellation.
“One thing I want to make clear is we will not make an investment in a new venture,” Wyman said.
While negotiations move forward with Castle Harlan, other parties still can move to buy Iridium, and Iridium will continue to talk to other interested investors, Barry said.
Following Iridium’s filing for bankruptcy, almost all of the company’s approximate 600 employees were laid off. The 14 remaining were scheduled to be let go May 31, but Castle Harlan’s letter of intent included the offering of $200,000 of cash collateral to keep on certain employees through the end of June.
“It’s hard to conduct due diligence without people,” Barry said.
By all accounts, any company that succeeds in buying Iridium will get it for an incredible bargain. Iridium’s assets are valued at approximately $5 billion, a figure that ironically led to its downfall, said Anna Karamapahtsis, satellite analyst with Allied Business Intelligence. The system was just too expensive to deploy and maintain.
“Whoever acquires Iridium will be successful if they can solve these problems and offer more attractive prices. On the other side, Globalstar is very competitive. They have this 30-percent-off special price. The voice market is the most problematic for the satellite industry because the satellite voice market is a niche market. The winners are going to be the organized companies with the least expensive offer,” Karamapahtsis said.
