Sirius XM: Betting on a losing horse
Today's Financial News - Posted February 5, 2009
Sirius XM Satellite Radio (NASDAQ:SIRI) is one of the most shorted companies on the market. The speculation surrounding the failing company is huge. The gamble got even bigger today.
By Andrew Snyder, TodaysFincialNews.com
Baltimore – (TFN): I must have hit my head on something this morning on the way into the office. Absolutely nothing makes sense. The government is capping executive salaries. Pelosi is threatening 150% unemployment and Sirius XM Satellite (NASDAQ:SIRI) is jumping in value.
The satellite radio company is giving its investors one of the best opening bell runs they have seen in a long time. It comes thanks to news that EchoStar (NASDAQ:SATS) has grabbed a “significant” portion of Sirius’ soon-to-mature debt. It throws yet another wrinkle into the speculative company’s future prospects.
It is obvious the overall market is optimistic about the news. After all, share price is up by over 30% at the moment. But I would not be so quick to make plans for a victory parade. There are a lot of questions that need to be answered.
First, we need to know exactly what debt EchoStar has purchased and whether the company is willing to swap the notes for equity. If it refuses and it has bought enough of the risky debt, it stands a chance to force the company into bankruptcy and stake a major ownership claim.
That ain’t good
Next, we need a clear indication of what EchoStar wants out of its investment. Is it merely a play to take advantage of and profit from the company’s overwhelming debt? Or does EchoStart want to acquire the company on the cheap?
With the information available as of this morning, I would vote for the latter as it makes much better business sense. EchoStar already has satellite expertise and could develop significant synergies if the two companies merged.
That means investors buying shares of Sirius on today’s news could be in for a rude awakening when they hear news EchoStar has wiped them out of their equity position.
Sirius is one of the most shorted stocks on the market. Only Ford (NYSE:F) has more shares sold short. It is no surprise a good deal of “shorts” are bailing on Sirius today. The EchoStar news introduces even more risk (for both sides of the gamble) and many traders betting against the failing company are already sitting on hefty profits.
But as this news develops, today will look like a great entry point for new short sellers. Sirius is in major debt trouble and EchoStar is seeking to take advantage of it. It will not be a happy ending for the investors at the bottom of the ladder. They will likely be left holding shares of a worthless company.
Sirius is one of the most speculative companies out there. Today’s news will only fuel the guessing game and make the investment even riskier.
Unless you do not mind rolling the dice with your money, it makes no sense to go anywhere near this trap. This is not an investment. It is a crapshoot.
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