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Iridium LLC

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by

Aida Orujova

on 29 April 2015

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Transcript of Iridium LLC

Calculating worth per share
Lessons drawn from case study
Why did Motorola finance Iridium with project debt instead of corporate debt?
Managers must estimate project Iridium as a Real option
Investments were applicable but actions were not
Option Value Assessments should be build in the Business Plan
Costs of Risky Projects can be reduced via Opportunities for Contracting and Learning
Strategic Leadership of CEOs and Boards Can Make, or Break, Strategic Initiatives



Aida Orujova
Elchin Hasanov
Heydar Aliyev
Leyla Huseynzade
Rasul Aliyev

Iridium LLC
30/04/2015
Agency theory
Group #1
Outline
Introduction
Iridium's worth on a per share basis
Causes of Iridium's failure
Mistakes in financial strategy
Why did Motorola finance Iridium with project debt instead of corporate debt?
Lessons drawn from the case study
Conclusion
Future cash flows


PV of future cash flows
Year
Capital Cash
Flows
-1,550
-1,586
-73
1,285
2,183
2,763
3,418
4,085
4,034
3,510
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
Year
Capital Cash
Flows
-1369,8
-55,71
856,81
1261,73
1519,62
1586,65
1368,84
2007
2006
2005
2004
2003
2002
2001
2000
1999
1406,1
1040,52
Causes of Iridium's Failure
Mistakes in Financial Strategy
Terminal Value
Estimation of growth rate
Company value
- PV of Terminal value + PV of cash flows

Equity value
- excluding all debts, and losses

Equity value/total shares outstanding
- not fully diluted shares.
Bad Execution
failed to analyze infrastructure needs and costs
started advertising campaign before phones were available for sale and yet had to finalize agreements with 240 providers
Iridium spent too much and there wasn’t enough cost management and controls
Manufacturers worked too slow
Failed to answer 1 million inquiries due to confusion and experienced logistical problems distributing the phones

Bad Strategy
Big Bang approach to greenfield technology instead of an organic and phased approach
Missing pilot program to test the feasibility and gather consumer feedback
Too large and too expensive phones and calls (3000$ phones, 3-7$ per minute of call)
No service inside buildings
Short satellite life
Logistical problems distributing phones

Executive Summary
Iridium
– communication system launched by Motorola
Services
: global phone, fax, paging system
Objective
: Allow access to the worldwide phone network from anywhere in the globe

Three Chronological Phases:

Research phase 1990-1995

System Development 1995-1998

Commercial Launch 1998-1999

Wrong Target Capital Structure
-60 % debt-to- debt book capitalization ratio


Issuing wrong kind of capital
-Commerical Launch – Bank Loans

Project debt allowed Motorola to protect itself from the high risks related to the project

Putting the project on its own balance sheet could potentially adversely affect stock price

A longer adoption rate, esp. for such an unproven target market
Step 1:
Step 2:
Step 3:
Full transcript