Six Likely Takes on the Sirius Situation 33 comments
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News came out late in the day Tuesday that Sirius XM (SIRI) has hired advisers to prepare for a possible bankruptcy filing. The result on the equity was nearly instantaneous as after hours trades took the stock down well below a dime.
While the reaction was that this news was unexpected, it shouldn’t have been. Rumors that a bankruptcy plan surfaced in December at the shareholder meeting. When I was asked about it, my answer was simple. The company having a plan in place for bankruptcy was prudent business. The existence of a plan does not mean that it will be used. It simply means that it is an option among many that is on the table.
Now, with the news surrounding Charles Ergen, a possible bankruptcy scenario has to be considered, either forced, or through the company itself.
Sirius has hired Alvarez & Marsal; Simpson, Thatcher & Bartlett; and Evercore Partners to look at various options that may well include a bankruptcy plan. Evercore, Simpson, Thatcher & Bartlett have been working with Sirius XM for quite some time.
Some of the quotes attributed to this latest news should be very concerning to shareholders. However, everyone must also consider that neither the company nor Ergen have made any definitive statements. So far this has been a battle of “people close to the company” or Ergen. We should not forget all of the people who were “close to the company” that predicted the merger time and time again, only to see it delayed for months afterward.
The New York Times stated, “Sirius has been working with the restructuring expert Joseph A. Bondi of Alvarez & Marsal and the bankruptcy lawyer Mark Thompson of Simpson, Thatcher & Bartlett to help prepare a Chapter 11 filing, people close to the company said. The documents and analysis are close to being completed and a filing could come within days, according to a person familiar with the matter.”
That was enough to make a selling frenzy happen in after hours, and to send e-mail alerts flying like never before. Should investors rely on this latest news? That is a personal decision for each investor. They need to consider their risk tolerance and seek advice from a financial adviser to reach a decision that best suits them.
From my perspective, the news is not shocking given the recent events. There is a large stakes poker game happening here, and the shareholders are the chips on the table. Ergen is building leverage. The question is whether Karmazin has an ace up his sleeve. With $175 million due on debt in a few days time, and a substantial payment to Major League Baseball also coming due, the company needs about $225 million. Should they take care of those issues, the next hurdle is in May.
As has been reported by many sources, the leak of bankruptcy news may force Ergen’s hand earlier than he would like. In the end, if Ergen wants Sirius XM Radio, he has the financial ability to make it happen. For shareholders, it is a wait and see situation.
One thing to remember is that there have been many opinions surrounding the Ergen issue and this latest news about bankruptcy. Not all of these theories can be right. Taking a step back and looking at the issue with fresh eyes tell us a few things that are most likely:
1. Ergen has an interest in Sirius XM Radio.
2. If Ergen were to make a move, FCC approval may be a lingering issue.
3. Ergen buying debt lowers his risk in his maneuver. If his plan does not go down the path he wants, he should still be able to recover at least a large chunk of his investment.
4. Sirius XM is having their hand forced in some ways. Putting a bankruptcy plan in place is prudent. Leaking that news shows that the final outcome is not yet in place.
5. Sirius XM should have over $400 million in cash at the end of Q4 2008. Using this cash to handle the debt and the baseball deal would hamper the company, but could also buy them time. The question is whether they can negotiate the remaining debt, or whether Ergen has to wait out for the next cycle.
6. The company should be conducting their Q4 conference call in the next two weeks. With little news coming from Sirius XM, investors are quite nervous, as the next several days will be critical to the future of the company, as well as shareholders.
As investors, the only thing that can be done is to absorb the news, formulate your own opinion, and act accordingly. Until there is definitive word, this equity is on a roller coaster ride.
Position: Long Sirius XM Radio
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This article has 33 comments:
Some god points made. Thanks for the information. I know its difficult with the lack of transparency from the company to give any "real" factual details, but thanks for trying to help us figure this whole thing out.
I invested in Sirius because I wanted my kids to be a part of the next great thing, uncensored radio, great content, and the potential of unregulated content distributed also via the internet. I understood the risk and never invested to make this a major part of my portfolio, although I have a significant amount of shares, most of which i acquired post merger so its not so bad, but I was there in the beginning, even before Mel who arrived with such a track record for success, and of course I was overjoyed when the merger was announced since the FCC should have never allowed two companies in the first place.
During the merger process, we all were exposed to how America works and boy did it leave a sour taste in my mouth. I ask everyone who posts here a simple question, do you have any respect for our regulators, let alone trust, and can you ever trust any politico ever again? And as if this wasn't enough, we are now seeing how Wall street really works, with their antics, and once again does any of you trust these cats with your fortune?
I grew up poor, and created a company and built it by being on time and on the money and I take care of my people, then I created a second busines and am doing exactly the same thing. My people come to work every day knowing they aren't going anywhere and I make sure that we invest in income producing property and other sure things like publicly traded LLC's and tax free bonds and I believe in diversification and most of all I try to guard against greed.
If what you say is true, that Sirius has around $400 million in the bank, then why not do something simple..... like pay your bills, retire the debt that is due in February, lets buy some time to May and lets sit down with the more senior lenders and either modify or extend the debt if refinancing is not available due to the economic climate, or go to the investors and say guys invest a little more and lets get rid of the debt and now we going to make some profit since our synergy's are kicking in and we got a service that people want and despite all we have a business that is GROWING, despite the economic conditions in our country. This company should be kicking A** Then Ergen goes away, he made his money and he's a happy camper, free to invest his profit in other stock or maybe on this seven cent lottery ticket
Maybe Ergen feels the same way we do. Maybe he believes that long term this company is the future in media but it was poorly managed especially XM which was a mess before the merger. Maybe just his presence and his reps on the Board would be enough to insure that this company would stop squandering money on big name talent that does not produce subscribers (remember Oprah, Martha, Bode Miller)or hold them either.
So I guess this is all about ego, Mel doesn't want to give up control, and we the shareholders are caught in the middle, and he wants to be the CEO so much that he would put the company in bankruptcy just because he wants to be the boss? Does this make good business sense to anyone? How many shareholders are subscribers and how many will cancel if we entered bankruptcy? I would on principle and I hope every investor shareholder would do the same. If Mel takes this company into bankruptcy because his ego is bruised, well then he was not the great leader we thought he was and its true he ran this company into the ground, but an awful lot of bigger players than us are going to get hurt by his actions, please not that despte the surge in short selling, since the merger, institutional ownership is up and retail ownership is down, and there are a lot of players that are going to get hurt and they will be asking a lot of questions , and Mel will be done his legacy tarnished forever.
My guess, is that over the long weekend these guys will make a deal, you know "a deal deal," maybe Ergen is a Republican. Maybe these two guys will put aside their greed for something far more precious... freedom of speech.
As for my boys here on the site, lets go buy some real estate, the prices are down, rates are low, there are plenty of opportunities out there and there really is money out there if you know where to look.
great post. I lost all respect for the political system years ago unfortunately. I have participated in the system expressing my opinions and concerns to the politico's and it doesn't matter to them. They do as their greed and ego's dictate. I am raising a 12 y/o son who sees current events and asks why the people in DC do the things they do and yet our country is in a bad way. I am trying to get him to not be as pessimistic as his "old dad" and that if he applies himself in school he could be one who changes the way things are done in DC. God knows this country needs new blood in DC.
I too will be canceling my subs on principle.
I h
Outstanding post! I don't think it could have been said much better. I too see a deal being made. Take a look at the history of Mel's employment...I believe there are some answers revealed there. He has been smack dab in the middle of alot of mergers and acquisitions. I think we see the same thing play itself out here. I was hoping to see a strategic partnership with a company like Microsoft...because I think they both would have gotten significant benefit out of it, and it was a deal out of nowhere....but I don't think that's the type of deal we are looking at here. In any case...I remain both a stockholder and a sub, and I still believe the company is not going away at shareholder expense. Best of luck to all who have staid the course and believed in the product and the business.
It makes no sense for them to file Bakruptcy......even chapter 11. They have 20 million subs all paying listeners, and have enough ways out of February debt. If they were to file any time soon...lawsuits would fly.....and people would be going to jail! That is not speculation...that's fact! There is no hurdle to be jumped over to get through February......unless there have been outright lies told over the past 6 months. May debt is the issue here...but its much too soon for BK talk in my opinion.
On Feb 11 09:11 AM asm61064 wrote:
> Big Ben,
> It makes no sense for them to file Bakruptcy......even chapter 11.
> They have 20 million subs all paying listeners, and have enough ways
> out of February debt. If they were to file any time soon...lawsuits
> would fly.....and people would be going to jail! That is not speculation...that's
> fact! There is no hurdle to be jumped over to get through February......unless
> there have been outright lies told over the past 6 months. May debt
> is the issue here...but its much too soon for BK talk in my opinion.
On Feb 11 09:22 AM ITS A SIRIUS XM WORLD wrote:
> They are getting tons of cancellations as we speak. A friend of
> mine called to cancel, waited for an hour and a half before doing
> so.
Great post......
On Feb 11 09:40 AM Big Ben wrote:
> It makes total sense to file chap 11th. Reorganize, come out much
> leaner, screw the common. We got had folks!
Hold on to hope, because "neither the company nor Ergen has made any statements". Tyler, are you kidding? Are you really holding on to THAT? The hiring of bankruptcy help comes a week before a major tranche of debt is due. GIVE IT UP!
There's only one ray of hope: chapter 11 doesn't mean programming stops, first comes a debt restructuring process. In an environment like this, trust me, the company is about to undergo massive changes. The programming you are enjoying will never be the same. For example, don't be surprised if ads show up on the music stations real soon, Sirius can't afford to say no to any revenue opportunity now that they're at the mercy of vultures.
And cheer up. The government is bound to be the one doing the restructuring, they're the only ones who can afford it. Once that process begins, Clear Channel is next. Government-owned radio, that's where this is headed. Ask the bank CEOs what it's like taking marching orders from the government.
They may have hired them 2 years ago for all we know...
And filing a piece of paper, and you still owe every penny? I refuse to let lies surround this stock...You still owe every penny. BK filing relieves you of ZERO debt, and gives your ZERO Dollars back...It only buys you time, and you now have no control over how and when and who gets paid...Not exactly an option for someone who likes to be in control..>Trust me CEO's like to be in control..
on point as usual!
I bet this firm does a lot of the legal stuff for Sirius.
The recent stories make it sound like Sirius went out and got them just to file BK when in fact they have been retained for years.
On Feb 11 11:16 AM relmar2003 wrote:
> They didnt hire them recently, in fact according to reports from
> Sirius they havent hired them at all....
> They may have hired them 2 years ago for all we know...
> And filing a piece of paper, and you still owe every penny? I refuse
> to let lies surround this stock...You still owe every penny. BK filing
> relieves you of ZERO debt, and gives your ZERO Dollars back...It
> only buys you time, and you now have no control over how and when
> and who gets paid...Not exactly an option for someone who likes to
> be in control..>Trust me CEO's like to be in control..
I encourage all to do the same. walk out and show this people the same token we were handed.
you made a decision based on unsubstantiated news......... its best that you not get back in....
Let me guess.... it doesn't fit your self-educated calculations. Hard to explain how this love-stock could treat you so bad, isn't it? Just can't imagine Mel & Co. make you look like complete hot-air buffoons. Shocking. And all the cheerleaders who rooted you on..... how could your limited wisdom let them down like that? Kind of hard to imagine which is the bigger fool now. Is it the leader..... or the follower?
Perhaps you all need a group hug..... to tell each other every thing is going to be all right and Mel is going to coming riding in and save you all from humiliation. Try to razzle dazzle each other by throwing a bunch of fancy Wall Street words and acronyms around.... and then make claims how SIRI is testing a new low, so other new readers think you really know what you are talking about, when really you & I know better, and know you don't have a clue. Good luck with running your mouth much more than your ears.
Maybe next time those fakes won't be so eager to criticize others. Maybe now they will understand that Mel doesn't give the first flying flip about them and all their flag waving.
Please, and you know which ones I am talking to, please explain how this happened to such market scholars as yourself?