Sirius XM Radio May Be Considering Reverse Split? So What 37 comments
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It seems that satellite radio can not let a day pass without speculation or someone reading more into a statement than is really there. Wednesday on CNBC, Mel Karmazin spoke with David Faber in a brief interview that discussed in general terms the closing of the merger, and where the company is headed.
Mel stated many things that people seem to have overlooked, because at the end of the interview, Faber inquired as to whether the company would conduct a reverse split. Mel’s statement that the cash flow of the company is how it is run fell on deaf ears. The fact that $2.2 billion in revenues have been generated over the past 12 months, or that aside from a satellite launch in 2009 the company would be in positive territory in 2009, might as well have been stated in a foreign language, because all everyone wants to talk about is a reverse split. Even Motley Fool wrote about it with a headline that was sure to generate some clicks for their website.
The reason some seem to want a reverse split is so that they can get the stock price to what they feel is a more respectable level. The function of the split does nothing more than bring down the amount of shares by way of increasing the value of those shares. If an equity trading at $1.60 were to do a 4 to 1 reverse split, the number of outstanding shares would be divided by 4, and the price multiplied by 4. In theory the event is neutral, but perception also matters. Most reverse splits are not seen as a good thing. It is a move that companies sometimes use as a last resort to make their shares more attractive.
If, and that is a big if, Sirius XM Radio (SIRI) were to consider such a move, now would be about the best time to do it. Some argue that certain institutional buyers and funds cannot buy stocks below $5.00. Obviously, in its current situation, Sirius XM is below that price. If this were a major concern, then there could be some benefit to using a reverse split to facilitate allowing those institutions to invest. However, if the buying pressure does not exist now, then what makes anyone think that simply getting the price above $5.00 would add an influx of buyers that would be material enough to make the process worthwhile? From a market cap perspective, the reverse split accomplishes nothing.
Mel, when asked if he would entertain the idea of a reverse split, gave the only answer he could. “We are considering all options,” and somehow, that statement became the topic du jour. Personally I care less about the reverse split than I do the $400 million in synergies, the $2.2 billion in revenue, the converts due in 2009, the cash flow, the fact that Sirius XM is the second largest revenue generating media company, and the fact that metrics will scale better with the merger.
Talk about reverse splits all you want, but it will not get you anywhere fast. Investors should look at the metrics, the guidance, and what the potential of SDARS is rather than worrying about a comment on a stock split that does not change the market cap.
Position - Long Sirius XM.
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On Jul 31 12:52 PM EK wrote:
> Please show me an example of a Reverse Split. Do the shares increase
> in value or decrease? I have a couple of other stocks that have done
> Reverse splits but the value of the stock didn't change, I just lost
> a lot of shares for that company. I don't understand how or why the
> SEC allows this to happen.
A reverse split is simply an open admission from management that the underlying business is so profit-depraved that the only way to increase the stock price is through artificially-imposed financial engineering measures. If the business has real, tangible profit potential, it doesn not require a reverse split to make the stock price appreciate. I run, rather than walk away, from the stock of companies engaged in reverse splits.
A reverse split is just one more symptom of the poor performance prospects SIRI has as an investment. Best case scenario, it lures more sucker individual investors to buy more of a penny-stock because it creates the appearance of appreciation.
Successful, profitable companies buy back their shares. They don't execute reverse splits.
Before you excoriate me for saying the obvious, ask yourselves this question: If all of you are such successful investors, then why aren't you rich?
Satrad: Great idea, bad investment. By diluting the common shareholders by 17% this week, management sent a powerful signal that it's writing off the common shareholders so it can keep the bondholders watered and fed. That's the plan, guys. Why would you want to own the common with such a small chance for only modest upside, when you can get paid 6% just to hold the convertibles?
Professional portfolio managers won't touch this stock with other peoples' money. Why in the world would you buy it with your own hard-earned dollars?
There's a reason why individual investors are money-losing one-trick ponies. Like those who perished on the Titanic, they reassure themselves that everything will be okay even as the water gushes through the cracks in the walls, because it's easier to fantasize about victory than to admit the reality of real, money-losing defeat. I feel sorry for all of you. Oh, have a good weekend.
Hand in there, subscribers are going to double in the next 2 years.
I don't buy the argument that a reverse split will make it more attractive--------just look at the daily volume---in the millions everyday.
Agree with Radio 101, increase the price via a reverse split and the hedge funds and short sellers will attack at the earliest possible moment.
Give us protection against the shorts and naked short sellers and sure I would go for a reverse split-----but not without protection from these vultures.