Sirius XM And The Week Ahead

| About: Sirius XM (SIRI)

This week there will be some significant events that could impact the share price of Sirius XM Radio (NASDAQ:SIRI). After the market closes this afternoon, John Boehner will be holding a press conference to discuss the sequester - $85 billion in across-the-board budget cuts. Since there is no indication that any Democrats will be participating, I expect that we won't be hearing news of a compromise before the Friday deadline.

Tomorrow, Federal Reserve Chairman Ben Bernanke will testify before the Senate. When the Federal Reserve minutes were released last week the market reacted badly. Whether or not Bernanke's testimony will clarify some of the statements in those minutes about the bond buying program - often referred to as QE3 - remains to be seen.

Of more significance to Sirius XM investors will be a presentation by the company's CEO, Jim Meyer, at the Morgan Stanley Technology, Media and Telecom Conference tomorrow at 12:30 ET. At first glance, it would appear unlikely that any significant news would have been generated since the company's Q4 conference call on February 5th, or that Meyer will be any more forthcoming at the presentation.

We can expect questions about the used car program, but Meyer will probably choose not to share that information. On the call, CFO David Frear stated:

...on the used cars, I'd say that it's still sort of early days on individual metrics, and I know it sounds like we've got a lot of transactions, and we do. But we do like to see these things sort of trend over time. ... I think it will be a little while before we're able to tease out sort of sustained differences in churn profile. So you just have to stay tuned for that.

I suspect that the analysts will still be required to "stay tuned" for that used car information. However, there may be three areas where Meyer might be more forthcoming - the status of the $2 billion share buyback, the status of the tender and exchange offer for the 7% Exchangeable Senior Subordinated Notes (or Notes) due 2014 and an update on the increase in the Music Royalty Fee (or MRF).

The Buyback

The analysts asked several questions during the call about the status of the buyback. Frear noted:

When we announced the program in December, we were pretty close to earnings. And so the advice we had was to stay out of the market until we had gotten kind of the material nonpublic information into the marketplace, which I think we effectively do with this call and getting the K filed.

And, in answer to a subsequent call about the timeframe of the buyback, Meyer added:

No, I don't think we're going to come out with a timeframe. We don't want to compete against ourselves in the market. We will fill the initial authorization. As you know, we've got to be mindful of our restricted payment covenants as well.

If the buyback has begun, I would expect that Meyer would be willing to disclose that information. Beyond that, I'm not expecting much in this area, such as the number of shares (if any) purchased or the dollar amount spent thus far.

The 7% Note

The Notes had a change of control provision that allowed the holders to tender the notes early for cash plus accrued interest, or to exchange the notes early and receive additional shares. The holders will need to notify the Sirius XM Paying Agent and Exchange Agent for the Notes (The Bank of New York Mellon) by midnight March 1st of their intent to exchange or redeem the Notes in response to the change of control provision.

We know that as "of February 13, $0 principal amount of the Notes had been validly tendered and not withdrawn and $550 million aggregate principal amount of Notes remain outstanding." It is not expected that any of the holders will tender the Notes for cash since the market price for the Notes is approximately 80% greater than the redemption price offered by Sirius XM.

The more interesting question is whether or not any of the Notes have been, or will be, exchanged early in order for the holders to receive the additional shares. The offer to receive 38.1380 additional shares also expires midnight March 1st. I was surprised that as of February 13th, no one had decided to exchange their shares early because there is no additional benefit to postponing that decision. In fact, there is a penalty in the sense that no additional interest would be earned by delaying the decision until March 1st.

The Increase in the MRF

As of February 1st, the standard MRF was increased from $1.42 to $1.81. While it is still VERY early, it would be interesting to know if there has been any negative backlash to the increase. It is the type of information the Sirius XM follows closely and could have an impact on churn or ARPU.

After the monthly subscription price increase was announced in 2011, former CEO Mel Karmazin noted that the company keeps close tabs on this type of reaction.

You really don't know. We're going to work very closely with our "save desk" and make sure that we're monitoring carefully. So far, based on the noise that's in the market, or I should say the lack of noise that's in the market, we monitor social networking and basically go through the feedback that we've gotten from our subscribers.

Since this is similar to a price increase, I expect that Meyer and Frear have been closely monitoring any negative response. Whether Meyer chooses to share the information is another matter.

Liberty Media

And, if Meyer doesn't reveal too much information, Sirius XM investors will get another chance to hear an insider's perspective of the company. On Wednesday, after the market closes, Liberty Media (NASDAQ:LMCA) will release its earnings and host a conference call. With most of Liberty's value tied to Sirius XM, it should prove worthwhile to listen to their conference call and the questions raised by the analysts.


The theatrics taking place in Washington, D.C. will have an impact on the market, and Sirius XM is unlikely to be immune. Of much more importance will be what Meyer may disclose. And, if Meyer doesn't share too much, Sirius XM investors will have another chance to learn more about their investment from Liberty Media after the market closes on Wednesday. Finally, at the end of the week, car sales will be rolling in.

And if all that isn't enough, investors should expect a press release and an 8K about the results of the 7% Note tender and exchange offer at the beginning of next week.

Disclosure: I am long SIRI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I also have $3.50 January 2014 covered calls against a portion of my position, and may open new positions at any time.