Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2008, for GHL Acquisition Corp., a blank check company (SPAC) incorporated in Delaware. The company was formed to effect a business combination with one or more target businesses. As of the filing date, the company had not commenced operations other than organizational activities and the search for a target. On September 22, 2008, the company announced a definitive agreement to acquire Iridium Holdings LLC, a mobile satellite services provider, with the combined entity to be renamed Iridium Communications Inc.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2008 | Nine Months Ended Sep 30, 2008 |
|---|---|---|
| Revenue | $0 (No operating revenue) | $0 (No operating revenue) |
| Interest Income | $1,943,075 | $4,936,297 |
| Operating Expenses | $106,198 | $300,195 |
| Net Income | $1,097,043 | $2,548,339 |
| Earnings Per Share (Basic/Diluted) | $0.02 | $0.06 |
| Cash and Cash Equivalents | $489,843 (Unrestricted) | |
| Investments Held in Trust | $402,270,297 (Includes accrued interest) | |
| Total Assets | $404,438,928 | |
| Total Liabilities | $13,288,776 | |
| Stockholders' Equity | $271,150,153 |
Debt and Liquidity: The company has no long-term debt. A promissory note to the founder was repaid in February 2008. The company holds approximately $402.3 million in a trust account invested in U.S. government securities. Unrestricted cash is approximately $490,000. The company has the right to withdraw up to $5 million of interest income from the trust for working capital and tax obligations.
Material Changes vs. Prior Period
- Public Offering: The company consummated its initial public offering (IPO) on February 21, 2008, raising gross proceeds of approximately $408 million ($400 million from the public offering and $8 million from private placement warrants). This represents a significant increase in assets and equity compared to the inception period in late 2007.
- Trust Account: As of September 30, 2008, the trust account balance grew to $402.27 million due to accrued interest, compared to $0 at inception.
- Proposed Acquisition: The most significant change is the announcement of the proposed business combination with Iridium Holdings LLC, marking the transition from a search phase to a transaction phase.
- Share Structure: Following the IPO and subsequent forfeiture of founder units to maintain ownership percentages, the company had 48,500,000 shares outstanding as of September 30, 2008.
Guidance, Outlook, and Risks
Outlook and Transaction Details: The company expects to close the acquisition of Iridium in the first part of 2009, subject to regulatory approvals (including FCC and Hart-Scott-Rodino) and stockholder approval. The transaction involves issuing 36.0 million shares of common stock and paying $77.1 million in cash. A potential tax benefits payment of up to $30 million may be made to sellers. The company intends to launch a tender offer for its common shares at $10.50 per share, up to an aggregate of $120 million.
Risks and Contingencies:
- Termination Fee: If the transaction is terminated due to stockholder rejection or a breach by the company, a break-up fee of $5 million is payable to Iridium.
- Liquidation Deadline: If a business combination is not completed by February 14, 2010, the company must liquidate and distribute trust assets to stockholders.
- Regulatory Approval: Closing is contingent on Federal Communications Commission (FCC) and other regulatory approvals.
- Stockholder Conversion: The deal is conditioned on no more than 11,999,999 shares (30% minus one share) of public stockholders voting against the deal and exercising conversion rights.
- Founder Forfeitures: The founder (Greenhill & Co.) has agreed to forfeit approximately 1.44 million common shares and over 10 million warrants upon closing to reduce dilution.
Investor Verification Checklist
- Verify the status of regulatory approvals, specifically from the FCC and the expiration of the Hart-Scott-Rodino waiting period.
- Confirm the outcome of the stockholder vote on the proposed business combination and the number of shares exercising redemption rights.
- Review the definitive proxy statement for details on the $30 million potential tax benefits payment and the $5 million termination fee.
- Monitor the tender offer details, specifically the $10.50 per share price and the $120 million aggregate cap.
- Check for any updates on the forfeiture of founder securities (shares and warrants) as agreed in the side letter.