Sirius-XM: John Malone's 'Tony Soprano' Economics

Here is an update on the Sirius-XM Radio (SIRI) situation:

(From the FT):" John Malone’s Liberty Media (LINTA) offered $250m in a senior secured loan on Tuesday as the first step in a “multi-stage” deal to rescue Sirius XM ahead of an imminent debt deadline, the companies said in a statement.

The deal offered by Liberty involves a debt for equity swap and leaves Mr Malone’s group, which controls DirecTV, the US satellite television company, with a “meaningful” stake in Sirius, one person familiar with the satellite radio group’s discussions said ahead of the deal.

The $530m transaction will occur in two phases beginning with Tuesday’s infusion which is part of a larger $280m senior secured loan. That will be used for Sirius XM to repay $171.6m of its debt that comes due on Tuesday, with the balance to cover working capital and transaction costs. The loan bears a 15 per cent interest rate that will mature in December 2012.

In the second phase of the deal Liberty will provide a $150m loan to XM Satellite Radio and will offer to purchase up to $100m of its outstanding loans. At that point Sirius will issue Liberty 12.5m shares of preferred convertible stock and Liberty will take seats on the Sirius board of directors.

”We are pleased to have come to this agreement with Liberty Media, particularly in light of today’s challenging credit markets,” Mel Karmazin, Sirius’s chief executive said in a statement.

Liberty’s offer aims to thwart the advances of Charlie Ergen, chief executive of EchoStar (SATS) and Dish Communications, the US satellite broadcasters, which offered to buy Sirius last year."

This reads like a "Tony Soprano Deal" because not only will John Malone end up with a large stake in the company, but he's charging Sirius-XM an interest rate of 15% in a zero interest rate environment. All of this begs the question: what were the terms of Charles Ergen's deal if the John Malone deal was more appealing? Mind you, in all likelihood there were some personal and control issues at play in addition to pure financial ones, but I still wonder.

You can read more here.

Sources:

The Financial Times: "Malone comes to aid of Sirius" -- Kenneth Li, Andrew Edgecliffe-Johnson, February 16, 2009

Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.

Comments

[yomann:]

Can someone explain why the 1 year target has been reduced again? Yahoo says .30 now. Yo

Feb 18 07:24 AM

[BChargers:]

Markham Lee,
WELCOME, Lets just say I am hoping you are replacing Tyler Savery.
It's hard to elaborate w/o insulting him. So I'll leave it @ welcome.
I appreciate and hope you keep coments somewhat sane and not the
usual SIRI is the best stock in the world, buy all you can, that I associate with Seeking Alpha.

Feb 18 07:39 AM

[relmar2003:]

Tyler has never implied nor said either of those things before. BCchargers your wrong. Please provide link were Tyler has ever said anything pillowy or illogical about this company. And I didnt read anything negative about Sirius in this article,so what are you talking about? Please elaborate what indeed your point is.

Feb 18 08:10 AM

[connorport:]

Why come to this blog if you hate SIRI? There are plenty out there that bash SIRI and give no reasonable explanation to their writings. Those are for people like you. Let some real SIRI investors have a blog where we can talk constructively. Thanks


On Feb 18 07:39 AM BChargers wrote:

> Markham Lee,
> WELCOME, Lets just say I am hoping you are replacing Tyler Savery.
>
> It's hard to elaborate w/o insulting him. So I'll leave it @ welcome.

>
> I appreciate and hope you keep coments somewhat sane and not the
>
> usual SIRI is the best stock in the world, buy all you can, that
> I associate with Seeking Alpha.

Feb 18 08:27 AM

[cos1000:]

This reads like a "Tony Soprano Deal" because not only will John Malone end up with a large stake in the company, but he's charging Sirius-XM an interest rate of 15% in a zero interest rate.

What side of the table have you been sitting at lately, borrowing or lending. Where can you borrow at a zero interest rate? This is more than misleading its inaccurate... Why not look at what companies like GE and GS are paying their Preferred Investors lateley...

Feb 18 08:30 AM

[connorport:]

i think these writers dont have their research done before they write. This company has over 6 billion in assets with a debt of 3.2 billion. They have the largest subscriber base of anyone out there. Something works here. You don't lead the industry the way they do without a product that sells. Even with the unstable economy we have they still grow, maybe at a slower pace than normal but its still growth. Its definately more than 90% of businesses in the US can say right now.

Feb 18 08:44 AM

[siriusmattinmn:]

You can think of this 2 ways, positive but not so positive everyone emptys out their piggys to invest. Or a negative spin on interest rate which in todays world with a higher risk credit world you just have to pay the piper temp. until the waters calm. Either way siri should be a long term stock for us all. Just sit back and enjoy the ride......p.s. don't panic if this comp had no future we would know already. :)

Feb 18 09:04 AM

[learn to think:]

Even if 4Q numbers disappoint (you never know how wall street will react, they're so fickle), I believe 1Q 09 will be much better.They're generating revenue by renewing contracts at the old subscription price before march 11. I also believe that people that wanted to purchase a subscription but were afraid of bankruptcy(which makes no sense) will now buy.

Feb 18 09:09 AM

[learn to think:]

Within the next 2 years we're going to see the emergence of satellite TV in every car, just like what happened to cable in the 1980's. The programming will explode Sirius into a profitable giant.IMO

Feb 18 09:13 AM

[lmaze:]

Markam: As an Italian-American I'm not to cool with the "Tony Soprano" reference, lord knows every Italian-American has been trying to bury this image once and for all, it kind of reinforces the idea that we're still a bunch of gangsters.

That said you do raise one good point, what exactly was Ergens offer? Yes there were ego's involved and there is some issues that probably came up between Mel and Charles, but still Mel has some serious money of his own invested in this company, and I'm certain that he and Malone have a game plan that we will see evolve over time, now that the pressing needs of SiriusXM have been addressed.

Just as we are realizing synergys from the merger, there will be synergys generated from this "investment." Further after the second installment the remaining debt is in the hands of friendly lenders, UBS and JP MORGAN and as was stated yesterday in the Farber report, this refinance is almost a done deal for a couple of reasons, the lenders also own stock, its not a lot of money, Sirius despite the economy is still growing, and adding subscribers, and these lenders would have no objection to convert debt for stock, especially in view of our new best friend.

By the way shed no tears for Charley, today he is an even richer man, perhaps he will use some of his profits to take a chance on a "lottery ticket" like we all have.

Finally this transaction may kick off another round of investment in Sirius by companys who have the cash and are willing to invest in a technology that continues to evolve, and in a product that, bashers notwithstanding, kicks ass! You know that because the churn rate is stable and minimal. Perhaps now Microsoft or Apple will partner up because Sirius isn't going out of business and there is a significant time horizon before Sirius has to turn a profit, two years based on yesterday's deal, but Mel is not going to wait that long, I'd be willing to bet that 2009 despite all will result in a profit, maybe not a lot but it will be the start of something unstoppable, there is no one that can go back to free radio after listening to Sirius, regardless of your music taste.

All that said, while this company has haters everywhere, including the NAB< Congressional whores, (especially Congressman Markey of MASS, why don't you check out his bio and his bizarre introduction of a bill that would require Sirius to install a free HD radio in every one of its receivers, this of course would benefit "rural homeowners" whose radio options are limited) it will not die and now that we have Malone, Mel can concentrate on putting some nails into some other coffins.

So we will listen to all the bashers screaming about dilution, how Mel sold the company down the river, inaccurate reporting especially by Business Week who recycles old stories and continues to bash Sirius, the LA Times whose owners are invested in dying radio statiions, Market watch which is or was owned by CBS whose radio devision is at death's door, and which never planned for the departure of Howard Stern, who now will probably re-up because he can so much fun watching everyone else drop dead, Barrons who somehow never gets anything right, especially the myth that Sirius overpaid to get Howard, all of them will have to eat crow.

Buy and hold, especially for the long term, this is an American company which created a product that employs Americans that embraces everything that is good with our culture, music, talk and comedy, how disgusting that narrow minded individuals wanted to kill off an American company for their petty reasons, above all for greed, but free speach will always prevail.

In addition, Markham, take a look at some posts from Cos 1000, Rel and SL62, they have a handle on the company better than the company CFO. I admire them because they have a passion which is inspirational.

Feb 18 09:15 AM

[shure46:]

Ya that is weird , it was .72 (apprx) yesterday ....it went from .40 - .72 - . 30 , in just a few days .... I imagine the latest drop in one year target is just a blanket drop in all stocks because of the last two days of decline in the dow and nasdaq .........Surely a trillion dollar stimulus package should give us a bump of some kind soon !!!!! But hell , whadda I know ....


On Feb 18 07:24 AM yomann wrote:

> Can someone explain why the 1 year target has been reduced again?
> Yahoo says .30 now. Yo

Feb 18 09:51 AM

[yomann:]

Thanks shure46, I thought I saw the .72 but it wasn't long, therefore didn't mention it -- thought I was hallucinating!! Yo

Feb 18 10:29 AM

[teegobay:]

I have been reading comments here for the last few week. Thanks to all of you that have constructive/informati... information to pass along.

I see a positive with the latest change sirius is incorpporating regarding charging for the once free online listening as an added revenue stream.

Feb 18 02:05 PM

[nakedjaybird:]

Hey, the financing of SIRI is capitalism at it's best. Real money is available at 15% - the real rate for risk takers. And this deal was better than going bankrupt, wouldn't you say.

Too bad Wall Street, housing, bankers, Detroit don't have to do business the way Mel had to. We'd all be better off with Mel's deals.

Feb 18 02:53 PM

[cos1000:]

Imaze,
Just read through on of the best written post I've seen in a long while...... sounds like you have a sound handle on all of the company's potential yourself.... with a little help from your partner I am sure.... Thanks for the props...... good luck to you both..

Feb 18 09:50 PM