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Judge: Motorola Largely Off the Hook For Iridium’s Collapse - Law Blog - WSJ
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September 5, 2007, 9:03 AM
Judge: Motorola Largely Off the Hook For Iridium’s Collapse
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By Peter LattmanSee that funny-looking phone on the left? That’s the Iridium satellite phone, which for the past 10 months has played a starring role in a federal bankruptcy trial in Manhattan. For nearly a decade, this bulky handset, which once sold for around $3000, has weighed like a brick on its former parent, Motorola. (Click here for Law Blog Background on the case.)
But the cellphone maker and its shareholders are now breathing a sigh of relief after Judge James Peck issued a ruling that largely absolves Motorola of claims by creditors of the defunct telecommunications-satellite operator Iridium LLC.
Iridium’s creditors were trying to force Motorola to return $3.7 billion it was paid to build Iridium’s 66-satellite constellation. Nurtured and spun off by Motorola, Iridium filed for bankruptcy just nine months after it began offering service in 1999. It had signed up barely 10% of the 213,000 customers that its loan covenants required. Its $5 billion in assets were liquidated and sold for $25 million. The satellite network came to symbolize one of the telecom industries biggest flops — some called its temperamental phones the Edsel of the telecom industry.
Judge Peck ruled Friday that even though the capital markets turned out to be “terribly wrong” about Iridium’s business, the start-up’s ability to raise money in the market means it was not “insolvent” during a critical period.
Iridium’s creditors are represented by Greg Danilow at Weil, Gotshal & Manges. Representing Motorola is a team led by Garrett Johnson at Kirkland & Ellis.
And in a nifty illustration of the wonders of the capital markets, the FT reports this morning that Iridium Satellite LLC, the privately held company that emerged from the old Iridium’s bankruptcy, is preparing to raise about $500 million in a private equity offering, to be followed by an IPO in the next year or two. Iridium now focuses on the industrial and business markets and machine-to-machine communications.
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Add a Comment Error message Name We welcome thoughtful comments from readers. Please comply with our guidelines. Our blogs do not require the use of your real name. Comment Comments (5 of 6) View all Comments » 5:14 pm September 20, 2007 silence wrote : oh me gosh – you’re kidding me! a bunch of investors put their money into a high-risk high-reward venture and it didn’t work out? i’ve never seen that happen before. someone quick! call the business school. they’ve got to hear this!
9:05 am September 6, 2007 anonymous wrote : It is hard to understand Judge Peck’s ruling in light of the fact that Motorola knew that the Iridium voice service would not work as well as they claimed it would. This seems to be a clear misrepresentation to investors and analysts.
2:02 pm September 5, 2007 amy wrote : the time will come when these people will face there maker!!!!!!!!
12:27 pm September 5, 2007 Judge Crater wrote : Too bad Enron did not compartmentalize its operations like Motorola, setting up LLCs to handle handle Enron’s various losing ventures, especially the Dabhol LNG power plant near Mumbai, a billion dollar loss for Enron. That way, like Motorola, Enron could have fobbed off its losing ventures to the U.S. Bankruptcy Court.
Whether getting rid of pension and health benefits owed by large corporations in bankruptcy, to the advantage of vulture capitalists, or freeing a large corporation like Motorola from any liability in the Iridium fiasco, the U.S. Bankruptcy Court’s judges issue decisions that sometimes seem not much different from the lettres de cachet issued by the ancien regime in France.
The judge’s decison can be appealed, but who ever wins on such an appeal?
As Yul Brynner’s Pharoah said in The Ten Commandments, “So let it be written, so let it be done.”
11:07 am September 5, 2007 Anonymous wrote : Iridium turns out the lights and its investment group crumbles as Iridium implodes into bankruptcy 9 months later. And flowers were not even sent to their door. Then private equity swoops in, raises half a billion for its second coming, then it IPO’s in a year or two at, likely, multiples to its original investment – all the while, the original investors still do not get flowers delivered to their door. Ah yes, the proud and the free. Scott free.
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