Sirius Investors Need to Summon Up More Patience... Again 21 comments
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As I mentioned in a previous post, Sirius XM (SIRI) has placed on its agenda for its annual shareholder meeting a vote to increase its authorized shares by a cool 1 billion. There was no notice given to shareholders; no press release from the company. Only an SEC filing which took most by surprise when details were learned of the proposed increase.
The business side of me acknowledges that this move makes a lot of sense for the company. At .50, a billion more shares will rake in 500 million dollars of operating capital. That kind of money would help thwart any future raids on the company by bond-holders and the likes of Charles Ergen and could be used to retire a significant amount of company debt. Just a few short months ago, Sirius XM had no hope of using an equity offering to raise capital, and was forced to seek a bailout from John Malone. Think of it as insurance which would also have another positive effect on the company's credit rating. Lower interest also means that profitability will be reached much sooner than anticipated.
Holders of the company's common stock, however, like myself, find this a bitter pill to swallow. We had hoped that any talk of dilution had ended, as we have hoped for the last decade. I believe that such dilution of existing shares would leave very little upside potential in the near term for the stock. I have been a staunch supporter of a reverse split to reduce the float and yet the company is asking its owners to postpone that event, while at the same time increasing its authorized shares.
The question will be whether institutional money managers will be fleeing the equity now that dilution has again been threatened, or buying based on a brighter outlook. The timing of the announcement could not have come at a worse time, ending a multi day rally on the same day that false news reports were issued through Fidelity which sparked a sell off midday.
With the upside so limited barring unlikely tremendous first quarter results, it looks like Sirius XM investors including myself, are going to be asked to wait yet again for the promises of tomorrow.
Disclosure: long SIRI
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Both you and I were attacked yesterday by mrcody65 on the Yahoo! board. All we did was state the obvious. Yes from a business perspective it may make sense, but at the same time how many times has this company not made sense. The fake news release did not kill the momentum yesterday. Somebody knew what was coming down the pike. We could of hit $1.00 in the next 2 to 3 weeks. This is typical SiriusXM business practice. Just as the stock starts rebounding, they kill it. This leads me to believe that insiders have an agenda that doesn't include the common shareholders like us. Please do not use the excuse that Mel is a shareholder. Mel gets lots of options and makes millions on top of the millions he already has. Their timing is suspicious once again.
So why now, and why 1B shares? This is a poison pill with one exemption. Malone is setting it up so only he can take over the company. That is what someone who has 550MM invested and and a minimum of 40% interest would do, and the loan covenants already give me great power over any merger. He is just sealing the envelope to keep others out entirely.
Also, an RS would be helpful and reduce future volatility. Putting it off until next year is wise. One, of many, scenario would have Malone converting his secured debt to equity and take control of the company. The board would have to authorize the breaking of the 'stand still' agreement, but that should be easy. You then do an RS, and restructure the remaining debt at much better terms.
This would likely be very good for shareholders, as the current debt expense (over 350MM annually) would be reduced and some of it eliminated, and the company would be profitable for the first time. Reading the filing entirely lends to that 'theory'.
Don't contribute to the hysteria Brandon. Think before you type.
On Apr 21 08:59 AM ZenInvestor wrote:
> Your article is a hysterical over reaction. This is an increase is
> 'authorized' shares, so no dilution happens until they are 'issued'.
> With your background Brandon you know this of course.
>
> So why now, and why 1B shares? This is a poison pill with one exemption.
> Malone is setting it up so only he can take over the company. That
> is what someone who has 550MM invested and and a minimum of 40% interest
> would do, and the loan covenants already give me great power over
> any merger. He is just sealing the envelope to keep others out entirely.
>
>
> Also, an RS would be helpful and reduce future volatility. Putting
> it off until next year is wise. One, of many, scenario would have
> Malone converting his secured debt to equity and take control of
> the company. The board would have to authorize the breaking of the
> 'stand still' agreement, but that should be easy. You then do an
> RS, and restructure the remaining debt at much better terms.
>
> This would likely be very good for shareholders, as the current debt
> expense (over 350MM annually) would be reduced and some of it eliminated,
> and the company would be profitable for the first time. Reading the
> filing entirely lends to that 'theory'.
>
> Don't contribute to the hysteria Brandon. Think before you type.
>
>
>
This is really necessary. Try not to focus on this, though, try to focus on the next quarters earnings as something to look forward to.
On Apr 21 10:59 AM holmesnmanny wrote:
> Everyone just relax. Brandon makes a valid point. The idea behind
> the stock dilution is not dilution to starve the stock price, it
> is that it would help raise money to pay down the debt. Sure, if
> you wanna get out now, then go right ahead and it appears that lots
> of people are given the stock decline this morning, but for long
> term prospects (which clearly does hinder short term stock price
> movement up) for prosperity will need to include debt reduction.
> This combined with a reverse split will get the stock price up to
> a healthier, less-manipulatable level, imo.
>
> This is really necessary. Try not to focus on this, though, try to
> focus on the next quarters earnings as something to look forward
> to.
Until then, I will smoke cigarrettes, and rant and rave and pace a lot.
:) Makes me feel better.
On Apr 21 11:44 AM relmar2003 wrote:
> Relax? Ok, Ill relax. When its back to .50 cents. HEHE :)
> Until then, I will smoke cigarrettes, and rant and rave and pace
> a lot.
> :) Makes me feel better.
I'm hoping for great news on or before May 11th.
On Apr 21 11:37 AM Neal Barkett wrote:
> Holmesnmanny, If your theory is correct then this is a buying opportunity?
>
>
> On Apr 21 10:59 AM holmesnmanny wrote:
I think the only way this stock is gonna make a big ride up is for them to find a way to pay down that 15% interest debt asap because that is gonna hurt their ability to turn a profit in the near future.
On Apr 21 06:35 PM I'm Not Jim Cramer wrote:
> It wasn't the fake news, but the REAL news of another dilution that
> drove the stock down!
The problem with that is that you run the risk of possibly getting out on a downswing and by the time you buy back the stock has moved up. The reason I am not in favor of this type of trading activity is that you are betting against a stock you were previously hoping would move up, but there is money to made in it nevertheless.