IDB makes stock/debt offerings to land $80 million.

Communications firm plans foray into telephone market

IDB Communications Group Inc., having built one of the largest satellite-based networks for transmitting radio and TV signals worldwide, has embarked on a secondary stock and debt offering to raise $80 million and push its way into a new market: telephones.

Buoyed by recent successes with its budding telephone services, crowned by Persian Gulf War reporter Peter Arnett's highly celebrated use of an IDB mobile satellite-link in Baghdad, company management has vowed to bring new mobility to telephone users around the world.

IDB stock and debt offerings in November and December are needed to propel the $86 million-in-revenues public company towards its target markets, according to a stock prospectus. The West Los Angeles company has no choice, in fact. A $35 million loan and a nearly $43 million revolving-credit balance are both due to Chase Manhattan Bank and smaller lenders by Dec. 31.

This week IDB is waiting for its $30 million check from underwriters after last week's sale of 2.3 million new shares at about $14.75 a share. Last week, IDB President and Chief Financial Officer Edward R. Cheramy hit the road to tout the proposed sale of $50 million in senior debt, with a seven-year maturity at 9 percent interest.

The moves reflect ambitious expectations held by Cheramy, 48, and company founder Jeffrey P. Sudikoff, 36, to triple revenues by the mid-1990s.

"When we're a $300 million revenues company, which we hope to be in three to five years, we expect these new telephone services to represent approximately half of our revenues," Cheramy told the Business Journal.

Currently they are "minuscule," he said. Telephone services "are a huge, huge market dominated by AT&T, and we'd be delighted to have 1 percent of it, or $100 million, in five years," said Cheramy.

A number of challenges confront Cheramy and Sudikoff, according to the prospectus and interviews.

* Interest expense is running at 40 percent of pre-tax income, and that will only drop to about 30 percent after the new capital is raised.

* Competition could be intense from AT&T, MCI and Sprint, with vastly greater resources and extensive satellite and fiber-optic communications networks.

* IDB financial results are vulnerable to fluctuations, spooking conservative investors. Recorded 1987 profit of 40 cents a share dropped to 8 cents in 1988 and rebounded to 34 cents in 1989.

Then it fell to 1 cent last year. That helped push the stock from 1989's high of $13.75 per share to a 1990 low of $5.25.

But Wall Street smiled on IDB this year. The NASDAQ stock bounced back and has maintained the $14.75 offering price announced Oct. 1 for additional shares.

If the stock offering is sold entirely, Boston native Sudikoff's stake in IDB will fall to 17.4 percent from 22.5 percent. Cheramy's will decline to 5.3 percent from 6.8 percent.

By its own reckoning, IDB currently distributes radio programming to more than 3,500 domestic radio stations and TV programming for all the major networks.

Since January the company has started up satellite-based communications services for more than 700 customers in the shipping, oil and cruise ship industries. Ship captains make use of on-board phones, fax machines and computers linked to offices on shore by satellite, in competition with COMSAT, or Communications Satellite Corp. of Washington, D.C.

IDB is devising a telephone link for commercial airline passengers in transit, in competition with several companies here and abroad, including a British Telecom's Skyphone consortium.

In September, IDB began offering long-distance service to the Soviet Union and had 48 fully operational phone connections, compared 91 by industry leader AT&T. And armed with authority from the Federal Communications Commission to offer long-distance connections to 72 countries, IDB plans to initiate phone service to most of those nations -- in competition with AT&T -- by year's end. This is a fat and growing market. Ma Bell has estimated worldwide long-distance revenues at $55 billion by the year 2001.