Sirius XM Gives Shareholders Another Pill to Swallow

Sirius XM Radio (SIRI) is proposing a new shareholder rights plan that is, in theory, good news for shareholders. In a move that seemed to come out of left field, Sirius XM Radio is proposing a Board approved “poison pill” strategy that is designed to protect the company’s loss carryovers to offset future gains. The strategy is not new to satellite radio. Both Sirius and XM used such policies in the past. When Mel Karmazin arrived at Sirius, the Board removed the “poison pill”.

Another strategy for a poison pill is to ward off hostile takeover attempts. If the measure is approved, and it likely will be, certain mechanisms are triggered if any company or individual acquires more than 4.9% of the common stock. If that happens, each shareholder will receive the right to buy a 1/1,000,000th of a share of preferred stock for $2. These fractions of preferred shares carry the same voting power as 1 share of common stock. Thus, the company seeking a takeover would be faced with massive dilution (a tough pill to swallow).

The timing of the announcement is interesting, as it could appear to be a defensive maneuver against something that may be in the wings. If that is the case, the potential suitor would have only until May 11th to make their move, because the rights fall to all shareholders as of the market close on that day.

This move does not provide any immediate indication that there is a suitor. In addition to the tax protection, the move may also be made to protect a company that is undervalued (in the eyes of some, including management) and on the cusp of becoming a profitable concern.

Certainly, a close watch of the trading between now and the eleventh is merited by shareholders.

Position - Long Sirius XM

Comments

[burnout:]

I assume that is 1/1,000,000th of a share of preferred stock for $2 per share of common held.
The stock has a long way to go before that is going to excite many of the current shareholders.

Apr 30 08:35 AM

[brandonland:]

where is the iphone app?

Apr 30 09:38 AM

[Ishortyou:]

the problem is how in the world they are going to come up with the cash to pay such amount of debts/obligations if their cash flow is impaired in the current business environment, their business faces a fierce competition mainly from open source media/internet and it is not getting better....anyone knows?

Apr 30 09:38 AM

[burnout:]

Just because new cars are not selling does not mean subs won't go up. I know of several people in the last month that have activated radios in used cars or bought portables. If subs rise cash coming in rises and the debt will get paid or at least serviced which will allow for refi down the road.
As far as competition most say it will be from the internet but with many high speed providers putting caps on usage with serious financial penalties if you exceed the limits I think more people will turn to SatRad for the biggest bang for their entertainment buck.
I know I'm not adding $50. to $100. to my phone bill to listen to music or get video.

Apr 30 10:18 AM

[Malkiel:]

The SEC should have the power to review all changes to stock ownership and the right to reject the creation of any terms which are harmful to the marketplace as a whole. It's getting way past the day when the State of Delaware and the CEO's of companies can create conditions which are wildly unfair to shareholders and the market in order to sustain their respective privileged positions in it...

May 04 12:03 PM