The beginning of the final chapter for Sirius XM (SIRI)
Today's Financial News - Posted December 18, 2008
This may turn out to be one of the biggest days in the history of Sirius XM Radio (NASDAQ:SIRI). Unfortunately, it may also be one of the failing company’s last.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): It is a big day for Sirius XM Radio (NASDAQ:SIRI) shareholders. They are meeting in New York to vote on issues that may permanently affect the company and its owners.
In case you have been hiding from the recession in a fallout shelter over the past year, Sirius has encountered a big problem. It cannot succeed at the basic function of every business: make more than it spends.
With subscribers not willing to boost Sirius’ dwindling revenues, the company’s CEO, Mel Karmazin, is asking shareholders to cough up some dough. With $1 billion in debt due over the next twelve months, the company needs cash fast.
That is why it is asking shareholders for permission to issue 3.5 billion more of the company’s shares. The figure is nearly double the 4.5 billions shares the company currently has outstanding. Karmazin is willing to take on the huge amount of dilution if it means the company can stay in business for another 12 months.
At today’s depressed stock price, the proceeds of the sale would bring in just $490 million or so, less than half of what the company needs to pay its bills. That is not good.
Voting for suicide
Most equity investors realize this deal is murderous to their position. Dilution will go through the roof in order to solve a very short-term problem. Sure, next year’s debt dilemma may be erased, but what about long-term viability? Today’s vote in New York will not solve any of the company’s fundamental flaws.
There is a reason Sirius cannot get the capital it needs on the debt market. The chances of it being able to pay the money back are slim. So why should equity investors pick up the tab if bondholders won’t do it?
Unless, Karmazin and his team can promise huge returns in exchange for the extraordinary risk he is asking of investors, there is no way anybody should go near this stock.
Right now, all the CEO can promise to do with any new capital is to increase the company’s chances of survival (from zero to about 10%). Just like General Motors (NYSE:GM) is asking Washington for a bridge loan, Karmazin is asking his herd of crazed investors for enough cash to get them over the next hurdle.
If Sirius makes it through 2009, it still has an incredibly tough road ahead. No matter what the outcome, today’s meeting will mark the beginning of the company’s final chapter.
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13 Responses to “The beginning of the final chapter for Sirius XM (SIRI)”
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December 18th, 2008 at 2:59 pm
How about selling advertising?
December 18th, 2008 at 3:54 pm
Watch for a reverse split with these guys, too.
December 18th, 2008 at 4:53 pm
LOL. You did NO homework on this 'article' (if you can call it that).
First, Sirius CAN'T raise its prices on existing products due to the FCC making that a condition of the merger. BUT, they are charging for 'Best of' services from Sirius and XM, and hundreds of thousands of subscribers have already signed up!
Second, they have 3.5B shares outstanding (you could have gone to Google to find that out), and they simply authorized more shares. They may or may not ever issue them, but some may be used to swap for debt in the future. It is hardly going to happen that ALL of shares would be offered.
Third, what about the news that they are going to be EBITDA positive in 2009, AND they reduced by 100MM the EBITDA loss for 2008. Q4 looks to be wash.
Fourth, you really did not 'think' before you wrote this article. The EBIDTA and other information provided shows that they not only can service the debt but pay it off. They need 210MM in February, that can be converted, and the 5/09 debt is a revolver which can be renewed.
Anyone who wants to know what really happened at the meeting might try reading the company link:
http://investor.sirius.com/secfiling.cfm?filing...
This is not a great moment for you site.
December 18th, 2008 at 5:34 pm
Deleting negative posts is a sign of a weak blog. You sir are a FRAUD!!!
December 18th, 2008 at 8:33 pm
Great article! Mel K. & Howard Stern have ruined satellite radio. When my subscription expires, I'm done. I've got HD Radio & an mp3 player in the car. Both are free.
December 18th, 2008 at 9:17 pm
Ahh… A ClearChannel blogger. Nice to meet ya, the only person on the planet with HD! Do they make all their employees buy them, or do you get them for free?
December 19th, 2008 at 9:08 am
Mr. Rehling: It is not the negativity I object to — as witnessed by other comments on our site. I monitor, read and pass on to the appropriate editor every single comment made on this site. (That is certainly not always the case on other sites like ours). How to handle comments has been the source of great debate in our office, but in the end, my colleagues have allowed the decision to rest with me. If I feel a comment is helpful, useful, or otherwise of interest to our readers, it remains. But if I feel that they are simply mean-spirited, that's another thing entirely. I'm sorry you disagree with my policy, but there it is. Laura Cadden
December 19th, 2008 at 9:27 am
You deleted my comment too.. and it wasn't 'mean spirited'. It was just of differing point of view. Hello socialism..
December 19th, 2008 at 9:33 am
Sigh… See now, Armistice, I think it was. No one on our staff has an agenda and I'm thinking that “short and distort paid monkeys” was over the top.
BUT… I hear what you guys are saying. I may rethink my position. My desire for TFN to be a place of cordial discourse may be outdated.
December 19th, 2008 at 11:08 am
Dear friends,
occasionally, we find it necessary to delete a comment. Possible reasons include that it is blatant spam… or that we feel the general tone, choice of words, and overall degree of maturity exhibited is not in synch with what we would expect from serious readers.
Some will cry socialism and censorship. It is not. Censorship can only be exercised by a government. We're not the government. Maintaining our site is a reflection of private, individual responsibility for one's property—like removing graffiti from the walls of one's home.
We created a site for mature dialogue and argument. If you feel that takes the bounce out of your bunjee, I'm sure there are plenty of sites where you can live out your need to communicate.
Cordially yours,
J. Christoph Amberger
Executive Publisher, TFN
December 19th, 2008 at 3:29 pm
Why did you delete my post?
December 19th, 2008 at 6:30 pm
Here's and idea, slash Howard Stern's ridiculous salary. How can he make what he makes when the company is going down the tubes. it makes no sense.
December 19th, 2008 at 7:41 pm
Since Howard got there, subscriptions increased at least $6 million. Lets say he was responsible for $5 million. At an average of $10 per unit subscription, he has generated $50 million per month or $600 million per year. His salary is $100 million, add another $100 million for his show cost, the net he brings to the table is $400 million. Any business minded person would love this rate of return. It was a wise move to bring Howard in, whether you hate him or not, a good move.