Wienkes, Merrill Weigh in on Sirius

We knew we would hear from Goldman Sachs analyst Mark Wienkes sooner or later. With the release of Sirius XM’s (SIRI) preliminary proxy for their annual meeting, Wienkes has once again slated Sirius XM Radio as a “Convicted Sell”.

In his report, Wienkes notes, “The proposals seem to run contrary to CEO Mel Karmazin’s 2Q08 conference call commentary ‘we have no plans for a reverse split.’ That said, times change and the proposals are unsurprising given +$1bn of 2009 debt maturities and difficult credit markets set against a business model that is still consuming cash. No change to estimates or price target.”

Wienkes believes that Sirius XM Radio will have no choice but to bring on another round of dilution, pending shareholder permission—”either via an increased proportion of company FCF (reset debt terms) flowing to debt holders, net new equity issuance, or both.”

The fact that Wienkes is still bearish on satellite radio should not come as a surprise to anyone. With the credit crisis still keeping markets imbalanced, there has been no real news or change that would have turned the analyst positive.

Long time media sector analyst Jessica Reif Cohen of Merrill Lynch has also issued a report on Sirius XM Radio. Her report notes that the company is seeking authorization from shareholders on additional authorized shares, as well as a reverse split.

Cohen notes that the reverse split is to ensure compliance with NASDAQ’s $1 listing requirement, but also noted, “…the share authorization is to provide financial flexibility to meet the $1.05bn of 2009 debt maturities as stated, ‘…we may choose to issue shares of common stock in satisfaction thereof (debt maturities).’ Given distressed trading levels of the debt and shares, incremental equity capital seems challenging. However, we can not rule out debt for equity swaps, with the incremental share authorization facilitating exchanges with convert holders (at what ratio unclear). Regardless, the risk for existing equity holders is dilution.”

Cohen reiterated Underperform on SIRI citing:

1. 2009 debt refinancing risk
2. Risk of dilution to the equity

Taking things a step further, Cohen also stated that Merrill will be reassessing their current PO of $1.00 considering SIRI sales channels have come under increased pressure with:

1. MLe forecast for U.S. auto sales lowered to 12.5mn SAR from 14mn SAR (SIRI guidance on 09/09/08 was based on14mn SAR)
2. Deteriorating outlook for U.S. discretionary retail spending  

Last,  the analyst states, “However, we think it is worth reiterating that if Sirius is successful in refinancing its 2009 maturities, the risk profile of the company would fall significantly.”

The average price target by analysts continues to be very low, and while investors are expressing frustration, there are not many positive aspects in nearly any equity in the market. The next likely step for Merrill and others will come when the company issues their third quarter results. Should Sirius have a positive result in their financing, the big overhang on opinion would be removed, leaving room for not only more positive opinions, but more positive outlooks as well.

Position - Long SIRI

Comments

[I weep for ...:]

So far MW has been dead on every time. I would listen, sell this dog!! SELL SELL SELL, that is what Cramer is saying too.

2008 Oct 19 07:55 AM

[oceansmike:]

we just made a road trip from Tahoe through Yosemite,to Sequioas to Coast and back Home -we listened to CNBC,CNN to the fast breaking Financial crisis on Wallstreet On our XM Radio in the GMC Acadia ,, if anything would move this stock is the ability to stay in touch with news first hand from financial anylists---it drove me nuts to listen to it but we have a lot invested in SIRI ,,,get the financing done ---

2008 Oct 19 10:05 AM

[sl62:]

Unfortunately, the stock and the product have continued to become more and more disconnected and are now almost running independently (respective to one another). This makes for a very dangerous investor situation IMO.

2008 Oct 19 10:48 AM

[pesa:]

Trying to rescue dead people in a sunk ship...maybe i dont get it it...perhaps to let them Die Honourably.
By continuing to buy siri stock....your are doing the above

Actually siri is a scam that should be investigated by Congress
Every time that guy Mel comes up with something that makes the stock move 2steps back..
*merger and issuing new shares
*reverse split and issuing more shares

These are symptoms of intentionally killing the stock and take it private,....Mel should be Fired and then investigated in that sequence.

Fire then investigate....not investigate and fire

2008 Oct 19 06:26 PM

[pyrap:]

I suppose contributions to this blog are written out of a sincere desire to ....., or....., well,...... maybe out of financial consternation (paralyzing dismay). After all, we have made a substantial investment and we are not doing well so far. Nothing said here will change that, or influence the price of Sirius/XM, or the management decisions of the company. But here is my 40K example to make myself feel better. I wish I could take up more space.

As a college pool champ 45 years ago I had the offer to play Willie Mosconi in a promotion for the opening of a new pool hall. Couldn't do it but the result would have been 325 to 0, as Mosconi dominated this game in a manner never seen before or since in any sport At the same time, more or less, there was "Minnesota Fats". Suffice it to say that Jackie Gleason who portrayed "Fats" in the "Hustler", not only made his own shots in the filming, but was atleast as good a pool player as the character he portrayed (and of course Gleason wasn't a homeless derelict).

My point is that some things are real, and some things that seem to be real, and bigger than life, are not. So I'll be trying to decide in these coming months relative to Sirius/XM whether I'm playing against Mosconi or Fats.

2008 Oct 20 01:53 AM

[moondragon64:]

SiriusXM will be the next Google, folks. Why would the FCC drag the merger proceedings for 18 months if if this was such a loser stock!??!?
The higher ups at CBS and FCC knew that with Sattelite Radio is going to profoundly alter the way we Information as we know it.

2008 Oct 20 03:22 AM

[Konst:]

moondragon64, you are an idiot. sirius is no google for many reasons. the main one is that it bleeds money, whereas Google makes tons of it. there is no conspiracy, it's just a shitty company and a shitty stock, notice I didn't say shitty product, the product is ok, but by no means is groudnbreaking or game-changing. it's one way, and importantly, an exorbitantly expensive way to deliver information, and now there are cheaper way to do it, but If they get their financing things might improve for the short term

2008 Oct 20 11:55 AM

[mlongj:]

Sirius retires 30.5 million of convertibles due in Feb 09

Press release 8pm monday night.

Long Sirius

2008 Oct 21 07:16 AM

[connorport:]

The only thing we can do at this point is cross our fingers. I think theres not as much conspiracy theory here as everyone seems to think. Who would debunk all these shareholders at a time when everything is being investigated by the Gov't and millions of shareholders have already lost in the trillions by banking tyrants. I see these moves as only an alternative to a bad financing deal. The board has to create an alternate path to take to get more favorable financing. If a bank is negotiating, knowing they are the only game in town for the deal then they will stick it to us as you already know from the most recent events on wall st. "If" no dilution occurs there will be no need for a reverse stock split as the stock will move sharply higher by itself after most of the analysts upgrade it. I am neck deep here as well and hope we can shed some light on this crap in a couple of months. If most here are like myself, this is very hard earned money and it affects very much the way we live. Analysts are nothing more than Okiedoke guessers strapping on to every wave up and down to give their genius reports and we like cattle actually listen to this bullcrap and buy or sell. These people are idiots because they all still punching a clock and they have the best seat in the house on inside info but they still pick more losers than winners. I just think this is a little more cut and dry than we think. These people arent godlike as we seem to perceive them. I am a higher figurehead in a company i co-own and built from the ground up and everyone seems to have their conspiracy theories about us but we are no different than anyone else and noone was there in the beginning to see the struggles it takes to build a business starting with very little. At this time our business has no problem getting financing and i think this deal will more than likely get done. Good luck to all. Great stuff.

2008 Oct 21 10:13 AM

[shure46:]

I was a bothered by the 67m share swap for debt story , because it said "after the split the debt holders will make a killing" ( on those 67 m shares ) ......but the story did NOT say WHY , they would make a killing ........is it because those 67m shares will REMAIN 67m shares ???? AFTER the R-S ?????? That would mean a 20 fold gain if it's a 20-1 RS ........that sucks .......seems like everyone is making money at siri except us common shareholders .............I guess that's because we are the ones paying for all this

2008 Oct 21 12:28 PM

[markbmark:]

Please vote NO to the SPLIT
AVOID SIRIUS STOCK!!!
Mel is a crook! He is putting the entire debt on the back of the long term stock holder. He planned it.

Let SIRIUS go BK. I don't want my 300K back from this crook. I want Mel nailed to a cross and justice!

LOL watch as is trades short after the split and then Mel will buy up on the cheap and go private. Crook!!!

2008 Oct 21 04:00 PM