Quiz: What's Iridium's Real Market Value?

Also, more on Petsmart and Carnegie.
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Fried-Day:

Flash: After this column was written, Iridium LLC issued a statement saying it has hired Donaldson Lufkin & Jenrette to advise it on restructuring its debt and cutting financing costs "in light of lower-than-expected subscriber ramp-up and revenue generation." ... And now here's the story.

Iridium insanity:

The best part of yesterday's

Iridium

story, which was left on the cyber-cutting room floor, is that even at the company's current market value (or perceived market value) of $285 million, many skeptics think the company is richly valued (if not overvalued).

But here's more that so many investors have missed: Investors in

Iridium World Communications

(IRID)

, the publicly traded company known as Iridium, are really buying into a $2 billion company. (And that's not even counting more than $2 billion in debt.)

Here's why: Iridium World Communications really isn't a satellite company. As it says in the 10-K for

Iridium LLC

, the actual entity whose 10-K is filed, the "sole assets" of Iridium World Communications "are its membership interests in Parent and its warrants to acquire membership interests in Parent ... Accordingly ... results of operations reflect its proportionate share of the results of operations of Parent on an equity accounting basis."

In other words, buckaroos, the only business of Iridium World Communications is to own what amounts to a 13.25% stake in Iridium LLC, which is the actual satellite company. That translates into a real market value of $2.1 billion for Iridium LLC, whose shares don't trade.

Put another way, the market value of Iridium World is irrelevant. Better to think about a $2.1 billion market value for a company whose stock has little in the way of institutional investors and whose junk bonds trade between 33 cents on the dollar on its bonds with an 11% yield, and 38 cents on its bonds with a 14% yield.

Why the disparity between the stock (with a lofty $2 billion value) and the bonds (trading at a deep discount?). Maybe stock investors don't really have a clue what they really hold? Iridium's financial statements, after all, require a roadmap; they're not easy for the casual investor to figure out. (Nor for yours truly, for that matter, which is why my first stab at this ended up on the cutting-room floor.)

And according to one Iridium short-seller, the prices and yields indicate that the company doesn't have the wherewithal to make the debt whole. "If that's true, then the equity is worthless," the short-seller says. That would be bad enough if the stock had a $285 million market value; it's worse if the market value is $2 billion, no? An Iridium spokeswoman said the company is sticking with its no-comment policy on its financials.

Meanwhile, several readers think I must be part of some conspiracy because my Iridium item ran the same time Iridium announced a new CFO. (Yeah, like I have a pipeline into Iridium and they tell me what they're going to announce so I can write something contra.)

And quite a few Iridiots blasted me for praising JJC's

rehash of his real-life Iridium experience down in the Caribbean. They claim JJC should've known that Iridium doesn't work where he was going. True? I asked the humble man (heh!) himself. His response: "It is much worse than that. I told my salesmen that I was going to take a vacation in the Caribbean and that's why I wanted the phone. They said perfect -- it will work great. I then told them again that I would probably go to Antigua, St. Martin, etc. They reiterated I was good to go. That's what makes me so furious."

Speaking of Iridium, don't ya wonder how a worst-case scenario (a restructuring or even default) could affect

Motorola

(MOT)

, which not only owns 19% of Iridium, but has backed about $1.1 billion in loans? Motorola has also provided up to $400 million of financial support by deferring amounts owed under a contract Iridium has with Motorola.

In its latest proxy, Motorola conceded that any default on its credit agreements by Iridium or the failure of Iridium to make its contractual payments "would have a material adverse effect" on Motorola's consolidated financial position, liquidity and operations. Yep, no, duh! What's more, it sounds like boilerplate. But if you're an investor in Motorola, and the unthinkable comes to pass, don't say you weren't warned.

Nobody cares, but:

A recent item

here said that

Petsmart

(PETM)

would be joining up with

idealab!

to merge its online operations with idealab!'s

PetJungle.com

. Make that "is joining up." The news was announced yesterday.

Carnegie, update:

Reader

George Mears

wonders if I've ever seen anything like

Carnegie International

(CGY)

, whose stock was halted (news pending) two weeks ago -- the day after it switched to the

American Stock Exchange

from the

Nasdaq

. It hasn't yet reopened.

My answer to George: No. A refresher: Carnegie's main business is telecommunications, but it also owns a

Victoria Station

steak restaurant in Florida, which it says provides cash flow. The company had been mum about what happened until last week, when it said, "In the course of its review of the annual report, the SEC has commented on the recognition of revenue from one transaction and the company is endeavoring to provide the information needed for resolution."

In other words, it has revenue recognition problems.

Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

herb@thestreet.com. Greenberg also writes a monthly column for Fortune.