"After March, 2012 Liberty has no control over what expenditures SXM incurs with respect to share buybacks as I understand it which is why both Frear and Karmazin have both stated that any decision will not come before 2nd qtr 2012."
I am not sure what you base this on. From the CERTIFICATE OF DESIGNATIONS OF CONVERTIBLE PERPETUAL PREFERRED STOCK, SERIES B-1 (Note the term "PERPETUAL"): "Section 6. Maturity. The Series B-1 Preferred Stock shall be perpetual unless converted in accordance with this Certificate of Designations."
"Section 7. Conversion. Each share of Series B-1 Preferred Stock shall be convertible, at the option of the Holder thereof, at any time,... "
Note that conversion is at the option of Liberty.
"Section 12. Special Class Vote Matters. For so long as an aggregate of at least 6,250,000 shares of Series B-1 Preferred Stock and Series B-2 Preferred Stock are issued and outstanding, in addition to any vote or consent of the stockholders of the Company required by law, NASDAQ rules, the Certificate of Incorporation or the By-laws, neither the Company nor any of its Subsidiaries will take any of the following actions, either directly or indirectly, ... without having obtained the prior written consent or affirmative vote of the Holders of at least a majority of the then outstanding shares of the Series B-1 Preferred Stock and the Series B-2 Preferred Stock, voting together as a separate class..."
"(c) except with respect to any sale or disposition of the Washington D.C. Property or in the ordinary course of business, any acquisition or disposition of assets, in each case, having a value of more than $10,000,000, or any series of related acquisitions or dispositions having a value in the aggregate of more than $20,000,000, in the aggregate; "
I am assuming the acquisition of Sirius shares in a buyback is covered by "any acquisition or disposition of assets,"
I find no reference to these rights terminating as long as Liberty holds the 6,250,000 convertible shares. I have no idea why the date you cite is important Frear or Mel. By the way, refi or payment of debt is permitted under most conditions, but not taking on new incremental debt.
Then again, you have a legal background, so...
As to the rest, I'm working on an article to better articulate some of the negative issues about buybacks. Reinhart and Rogoff wrote a book "This Time Is Different: Eight Centuries of Financial Folly." The truth is that it's not different this time. Many assume that it's different for SIRI vs. other company buybacks. I am not convinced it's the best - or even a good use - of cash.
A lot of this will appear to be circular, but you can't have a static situation. All things can not be constant when buying back shares. The funds to buy back the shares MUST come from somewhere - either cash or debt. Cash is a component of valuation. If Sirius uses about $1.3 billion to buy back stock, then there is either twenty cents less cash per diluted share or twenty cents more debt per diluted share, sort of.... $1.3 billion /6.5 billion shares = $0.20. It needs to be adjusted for the a lesser number of shares after the buyback... and it's hard to know what a buyback price would be and the lower number of shares. The reduction would probably be less than 600 million shares with a $1.3 billion buyback.
And, the use of the cash or increase in debt would need Liberty approval. They can veto anything beyond a certain minimal cash expenditure or increase in debt.
A buyback has an impact not only on EPS, but also on the net leverage or the net cash per share. How the market assesses that reduction in cash per share or increase in debt per share gets really complex, but it would not be correct to assume that it does not exist, or "everything else remaining constant".
As to the interest on the debt, again, all things can not remain constant. Using cash to buy shares instead of paying down debt means that there will be interest expense on the debt that wasn't paid off with the cash on hand. Will the market reward the Sirius share price if there is less debt per share? Would there be a debt rating upgrade with more cash and less leverage on the books, further impacting interest expense? EPS would increase with less interest expense...
As I started this comment, things can get circular.
Cedar Fair Provides Positive Surprises At Investor Conference [View article]
"1) If rates begin to rise dramatically in the USA as they have in Greece, Portugal, Italy, and Spain--due to massive debt loads in those countries, "
These comparisons are not realistic. We are discussing countries that have debt loads much, much higher relative to their GDP. They are stuck with a currency they can't deflate because they have a monetary union without a political union.
A more reasonable comparison would be to examine the interest rates of companies within those countries instead of the sovereign debt. Or. to discuss future interest rates as going higher in the US due to inflation because of all the quantitative easing. Then again, inflation would allow FUN to pay off debt with cheaper dollars...
More to the point, FUN expects to lower leverage a bit and can pull back on capital programs if it needs to. Or slow the growth in the distribution. FUN generates a billion in revenues and expects to spend 9% on capital programs. Total interest costs in 2012 are expected to be $100 million on 1.6 billion in debt.
"Those companies that are debt free will be more attractive, and valued as such in comparison to those that carry very heavy debtloads."
Maybe, although the dividends/distributions of companies is where a lot of the total return on investments comes from. In fact, all of the gain in the S&P 500 last year can be traced to dividends.
2. 2) You are patently incorrect about Warren Buffet not owning shares in technology companies. He recently established a SIZEABLE position in IBM, which everyone knows is a very large tech company.
I stand corrected, although I don't follow him all that closely. It was within the last few months, and it was really a first for Buffet. Here is an excerpt about Buffet: "For example, he personally is uncomfortable owning technology-oriented companies as he does not feel he understands the products these companies make (nor trends in the broader industry) well enough to make smart investment decisions." See http://bit.ly/Aa0vtt
I have seen him make these statements on Charlie Rose and here's a a quote relative to his recent change of heart from a November 14th CNNMoney article. "Berkshire's purchases in those other tech companies were far more modest than its bet on IBM. It bought 9.3 million shares of Intel and 4.2 million shares of DirecTV. Still they were unusual investments for Buffett, who has typically avoided tech stocks." http://cnnmon.ie/xlabCP
"If Buffett thought Cedar Fair was a highly sensible long term investment, I would think he would at least own some shares, "
Why? Buffet could buy them, retire the debt, and turn it into an ATM. Buffet typically buys those companies where he is invited. As to owning shares, the company currently has a market cap of less than $1.5 billion after rising more that 50% in the past year. He would have had to take a very small stake as an investment and it might no have been worth the effort.
Let's see, spend about $3 billion (for units and debt) and get $375 billion in EBITDA... Maybe he will.
Cedar Fair Provides Positive Surprises At Investor Conference [View article]
Dabqs-
"See: Warren Buffett -- I think he would beg to differ with you, Crunching. And I'd say his thinking long term in regard to investing has served him quite well. "
Assuming we are not referring to his purchases of entire companies, I don't think he and I differ very much. He buys stock with the INTENT of holding forever. He likes to buy companies with a protective moat, and Cedar Fair certainly has that - there hasn't been a successful major amusement park built in the last 25 years according to FUN. And, he buys the management of the company. I like the experience of the FUN management team.
He buys properties he understands and stays away from high tech. FUN is pretty easy to understand and not particularly high tech.
If the reasons he purchased stock in a company are no longer valid, he sells. You are worried about an event that MAY occur five years from now. I have no idea how you select your investments, but there aren't too many choices out there that don't face potential risks more five years into the future. I'm willing to live with a bit more risk than that.
"We have fundamentally different viewpoints on the basics of what makes for investment success."
We certainly do, and that's fine with me. Good luck to you as well.
(You probably won't like my other article on FUN that will be published soon.)
Cedar Fair Provides Positive Surprises At Investor Conference [View article]
Dabqs-
I should have been more specific. Kinzel retired as CEO on January 3, 2012 and is out of the normal decision process. I expect he will cease being a director when his current term expires.
"Cedar Fair is much more akin to Six Flags, where a constant flow of new attractions assures long term repeat visitors."
Maybe, but Six Flags - or at least the Six Flags Great Adventure park in my area - has also changed very little over the years. There is such a large population to draw from that it doesn't seem to matter very much. Families go back because at different ages their children enjoy different rides or attractions and then new families take their place. And, in my view, I don't see all that much difference between theme parks. I've been to Disneyland, Knott's Berry Farm, Great Adventure, Dorney Park, Hershey Park and a variety of lesser parks. The highlights tend to be the thrill rides - that's where the lines are the longest.
"It is better to think long term than short term. Smart people live their lives in this manner, and most people advise their children to think this way. And yet, FUN is being operated like a child who cannot delay gratification --always demanding dessert before eating a healthy meal."
Smart people budget and plan according to future expectations. Most save too little for their kids' college expenses and their own retirement and take on huge debt and others have gotten stuck in bubbles and foreclosure so I guess most of us aren't too smart. Will FUN run into problems in the future? Maybe, but an investment decision is not made for the very long term.
Ignore the FUN revolver maturing in 2015, it is the nature of the business with an overwhelming portion of the revenue coming between May and October - so the revolver was zero at year end. Otherwise, they have no debt maturing before 2017 and that's 5 years out.
You state "It is the long run I am concerned about, and recall, the long term is made up of a lot of short terms."
5 years is a long time. Keynes said in the long run we're all dead anyway. The market may be a discounting mechanism, but it rarely discounts out beyond one to three years these days, let alone 5 years. There will be plenty of time to continually reassess the performance of FUN under Ouimet and the new management team.
In the meantime, it seems to be a very sensible investment for those looking for income.
"By your response, I conclude that you do not acknowledge the existence of math and you have a problem understanding corporate decisions."
And you would be wrong on both counts. I have been intimately involved in major decisions at corporations of various sizes. I ran the numbers on joint ventures, major divestitures and other significant financial decisions. I constructed models and had to know the logic behind the alternatives and decisions so I could determine how to run sensitivity analyses. I also valued private businesses using various capital valuation models as part of some of these exercises.
"It is in the interest of liberty, taking into account both siri's company and share potential to do nothing with their 40% other than agree to a reasonable and mutually beneficial buyback plan with siri. "
Absolutely not true. Right now Liberty has veto power and board representation based on a number of shares. Those rights get altered when their share count declines. You refuse to recognize the rights that Liberty has and you refuse to acknowledge how valuable that FCF is to Liberty if they take control. Once getting to majority control, they get to make unilateral decisions on how to spend the money.
"Once siri starts buying back preferred and outstanding shares, liberty stake in terms of its value would be going up in spite of the reduction in the share count."
This logic is flawed. The value of a company is based on its revenue, earnings and cash flow and how it grows over time. If Sirius, the company, is worth $15 billion based on these metrics, it doesn't matter whether there are 15 billion shares selling at $1 each or 1 billion shares selling at $5 each. A company does not magically become more or less valuable based on the number of shares outstanding. And neither should a 40% stake in that company.
"Whatever Maffei may hope for. Incidentally, to address a big conference by saying that siri's stock, 40% of which they own, is hypocritical and speaks volumes about his intentions. "
You are refusing to listen and/or hear what Maffei says. He told you all you need to know regarding a decision by Liberty as it pertains to their investment in Sirius. He answered questions when asked and you accuse him of being hypocritical. He said he won't overpay for Sirius, that buying the last share was too expensive and that he thought the shares were expensive (or richly valued or something) but that it would grow into that value. He spoke openly about the options they have at their disposal. And despite that he said selling the shares is not a logical option, you continue to create situations where Liberty will sell shares.
"CN, the fact is that a decrease in outstanding shares guarantees that there will be an increase in the eps. "
Not exactly. You are assuming there is no change in earnings and relative to a static case. There are impacts on earnings from a buyback. These could include brokerage commissions, loss of interest income on cash, interest expense on debt that wasn't paid down, etc. In some cases, companies borrow to buy back shares and obviously that would be another expense.
If EPS was zero, a share buyback would drive it to a negative number. If there was a loss, the EPS would become more negative. But that isn't really the point.
The issue is what is currently built into the share price. If a buyback is announced, there will be a short term pop in the price of the stock. Historical studies show that to be the case. The problem is that the pop usually doesn't last.
Companies that execute buyback programs do so because they don't want to pay dividends (and there are some reasonable issues around limiting dividend payments) and don't have other uses for the cash. That indicates that they can't find reasonable growth opportunities to reinvest in the business. That's rarely a good sign.
If Sirius doesn't meet TOTAL earnings growth (not EPS) expectations of the market, the share price will drop even if a lower share count happens to cause a rise in EPS.
Frontier Communications: There's Still Time To Buy The Dividend [View article]
webmind-
Mea culpa! The CBOE would agree with you. They currently show FTR strike prices of $3, $4, $5 and $6 as at-the-money options.
"Love the strategy."
Thanks. It gave me a good deal of protection on my last purchase when the shares were at $5.31 and my net cost was under $4.60. Although with the shares down to $4.20, it wasn't the best move. Right now I'm looking forward to a bounce in the price after the earnings release and conference call in 2 weeks.
"it is also plausible that Liberty would accept such tax liability since as a result of the share buyback the share price would increase(offsetting the tax liability) "
You are basing your supposition on facts not in evidence. Both the articles I read and referenced say that a price increase is UNLIKELY based on historical probability because corporations, by and large, do such a miserable job in buying back shares. So, the idea that a potential price increase would offset a tax liability may just be wishful thinking.
A share price increase will occur if subscribers, revenue, earnings and/or FCF outperform market expectations currently built into the share price. Reducing share count doesn't guarantee that will happen.
"I was under the assumption that Liberty would need to complete a RMT, in order to gain control of Siri's FCF for outside purposes. "
Not sure what you mean by "outside purposes." I think you may be confusing the purpose of the RMT. The RMT is meant to preserve NOLs and use them as a tax shield against the acquirer's (Liberty's) earnings. Nothing would prevent Liberty - as majority owner - from using the FCF in a "reasonable" manner. A majority owned Sirius subsidiary can use its FCF to buy back shares, pay down debt or buy other assets. And if Liberty owns a majority, nothing prevents them from doing any of the three within the Liberty-controlled Sirius subsidiary.
At some point Liberty may want to spin Sirius back out to shareholders. That's where a lot of the issues around the NOLs and any acquired assets make the RMT (or in some cases where the NOLs are not a driving issue, a reverse merger) an interesting option for Liberty.
We do. But the issue is not just share count, it's the EPS. A reverse split reduces share count, but should do nothing to affect the value of one's holdings. The point is that it is not just the raw number of shares outstanding, or the diluted 6.5 billion shares, it's that each of them isn't earning very much. And, if Sirius did a reverse 1:6.5 split, there would be a total of 1 billion shares and each would be worth about $14. It's just not particularly useful.
I'm sure you were actually referring to a buyback as a means of reducing shares, but that's not what you wrote. Regardless, Liberty has no motive to participate in a buyback (more on this below).
"If we take 2011 results, at half of the share count siri would have made about 16 cents per share. What is wrong with that."
Nothing, except you would need to have $7 billion to buy those shares assuming the price doesn't keep moving higher.
"If we dream for a moment and, say, that the share count were 1.1B (as it was with sirius before the merger)"
But that's all this is ... a dream. You would still have two companies competing for subscribers and content. And it is most likely both would be bankrupt.
I'll repeat what I wrote in response to a comment by headybaldguy. Liberty likes acquiring stakes in other companies. If they use the SIRI shares as "currency" to acquire these stakes, there is no taxable event created. If they sell their shares they have to pay taxes and end up with less "currency" to make acquisitions or acquire those "stakes."
It is far more logical for Liberty to acquire Sirius and use the Sirius FCF to buy other things for Malone to play with. Or, after an acquisition of a majority position in Sirius, they can proceed with a share buyback. Liberty wants to own Sirius as much as you do, only they hold all the cards. Mel is playing against a dealer with a pat hand and a marked deck.
It's not about patience. I think Liberty believes that they can make more money by taking control rather than being patient. They certainly proved how astute they were in getting the 40% of Sirius along with all their veto rights.
And, anyway, Maffei said it is not a logical option to sell their shares. You may not like it, but it is far more beneficial for Liberty to take control of Sirius than to participate in a buyback.
"...Liberty would still own 40% of the diluted stock so in essence it would not be selling shares per se,..."
Maybe, but I think it was the tax liability rather than a decrease in ownership percentage that was the issue. It seems to make more sense to use the shares as currency to buy something rather than convert them to cash, pay taxes, and have less value to go and acquire something else.
(It's actually 293 million shares behind the note.)
"I not sure if Siri is a good long term investment because of all the uncertainties. "
I think Sirius is a fine long term play for most investors. Traders who are nimble can also make lots of money, but the old Wall Street adage says "Traders die Broke."
"John Malone and Greg Maffei are both excellent businessmen. If, indeed, a Liberty takeover occurs, I think shareholders would be in very capable hands"
The LMCA shareholders will be fine. I think the SIRI shareholders who were hoping to benefit from a pure play will be disappointed.
A SiriusXM Share Buyback? [View article]
"After March, 2012 Liberty has no control over what expenditures SXM incurs with respect to share buybacks as I understand it which is why both Frear and Karmazin have both stated that any decision will not come before 2nd qtr 2012."
I am not sure what you base this on. From the CERTIFICATE OF DESIGNATIONS OF CONVERTIBLE PERPETUAL PREFERRED STOCK, SERIES B-1 (Note the term "PERPETUAL"):
"Section 6. Maturity. The Series B-1 Preferred Stock shall be perpetual unless converted in accordance with this Certificate of Designations."
"Section 7. Conversion. Each share of Series B-1 Preferred Stock shall be convertible, at the option of the Holder thereof, at any time,... "
Note that conversion is at the option of Liberty.
"Section 12. Special Class Vote Matters. For so long as an aggregate of at least 6,250,000 shares of Series B-1 Preferred Stock and Series B-2 Preferred Stock are issued and outstanding, in addition to any vote or consent of the stockholders of the Company required by law, NASDAQ rules, the Certificate of Incorporation or the By-laws, neither the Company nor any of its Subsidiaries will take any of the following actions, either directly or indirectly, ... without having obtained the prior written consent or affirmative vote of the Holders of at least a majority of the then outstanding shares of the Series B-1 Preferred Stock and the Series B-2 Preferred Stock, voting together as a separate class..."
"(c) except with respect to any sale or disposition of the Washington D.C. Property or in the ordinary course of business, any acquisition or disposition of assets, in each case, having a value of more than $10,000,000, or any series of related acquisitions or dispositions having a value in the aggregate of more than $20,000,000, in the aggregate; "
I am assuming the acquisition of Sirius shares in a buyback is covered by "any acquisition or disposition of assets,"
I find no reference to these rights terminating as long as Liberty holds the 6,250,000 convertible shares. I have no idea why the date you cite is important Frear or Mel. By the way, refi or payment of debt is permitted under most conditions, but not taking on new incremental debt.
Then again, you have a legal background, so...
As to the rest, I'm working on an article to better articulate some of the negative issues about buybacks. Reinhart and Rogoff wrote a book "This Time Is Different: Eight Centuries of Financial Folly." The truth is that it's not different this time. Many assume that it's different for SIRI vs. other company buybacks. I am not convinced it's the best - or even a good use - of cash.
Cedar Fair Provides Positive Surprises At Investor Conference [View article]
A SiriusXM Share Buyback? [View article]
A lot of this will appear to be circular, but you can't have a static situation. All things can not be constant when buying back shares. The funds to buy back the shares MUST come from somewhere - either cash or debt. Cash is a component of valuation. If Sirius uses about $1.3 billion to buy back stock, then there is either twenty cents less cash per diluted share or twenty cents more debt per diluted share, sort of.... $1.3 billion /6.5 billion shares = $0.20. It needs to be adjusted for the a lesser number of shares after the buyback... and it's hard to know what a buyback price would be and the lower number of shares. The reduction would probably be less than 600 million shares with a $1.3 billion buyback.
And, the use of the cash or increase in debt would need Liberty approval. They can veto anything beyond a certain minimal cash expenditure or increase in debt.
A buyback has an impact not only on EPS, but also on the net leverage or the net cash per share. How the market assesses that reduction in cash per share or increase in debt per share gets really complex, but it would not be correct to assume that it does not exist, or "everything else remaining constant".
As to the interest on the debt, again, all things can not remain constant. Using cash to buy shares instead of paying down debt means that there will be interest expense on the debt that wasn't paid off with the cash on hand. Will the market reward the Sirius share price if there is less debt per share? Would there be a debt rating upgrade with more cash and less leverage on the books, further impacting interest expense? EPS would increase with less interest expense...
As I started this comment, things can get circular.
Cedar Fair Provides Positive Surprises At Investor Conference [View article]
"1) If rates begin to rise dramatically in the USA as they have in Greece, Portugal, Italy, and Spain--due to massive debt loads in those countries, "
These comparisons are not realistic. We are discussing countries that have debt loads much, much higher relative to their GDP. They are stuck with a currency they can't deflate because they have a monetary union without a political union.
A more reasonable comparison would be to examine the interest rates of companies within those countries instead of the sovereign debt. Or. to discuss future interest rates as going higher in the US due to inflation because of all the quantitative easing. Then again, inflation would allow FUN to pay off debt with cheaper dollars...
More to the point, FUN expects to lower leverage a bit and can pull back on capital programs if it needs to. Or slow the growth in the distribution. FUN generates a billion in revenues and expects to spend 9% on capital programs. Total interest costs in 2012 are expected to be $100 million on 1.6 billion in debt.
"Those companies that are debt free will be more attractive, and valued as such in comparison to those that carry very heavy debtloads."
Maybe, although the dividends/distributions of companies is where a lot of the total return on investments comes from. In fact, all of the gain in the S&P 500 last year can be traced to dividends.
2. 2) You are patently incorrect about Warren Buffet not owning shares in technology companies. He recently established a SIZEABLE position in IBM, which everyone knows is a very large tech company.
I stand corrected, although I don't follow him all that closely. It was within the last few months, and it was really a first for Buffet.
Here is an excerpt about Buffet: "For example, he personally is uncomfortable owning technology-oriented companies as he does not feel he understands the products these companies make (nor trends in the broader industry) well enough to make smart investment decisions." See http://bit.ly/Aa0vtt
I have seen him make these statements on Charlie Rose and here's a a quote relative to his recent change of heart from a November 14th CNNMoney article. "Berkshire's purchases in those other tech companies were far more modest than its bet on IBM. It bought 9.3 million shares of Intel and 4.2 million shares of DirecTV. Still they were unusual investments for Buffett, who has typically avoided tech stocks." http://cnnmon.ie/xlabCP
"If Buffett thought Cedar Fair was a highly sensible long term investment, I would think he would at least own some shares, "
Why? Buffet could buy them, retire the debt, and turn it into an ATM. Buffet typically buys those companies where he is invited. As to owning shares, the company currently has a market cap of less than $1.5 billion after rising more that 50% in the past year. He would have had to take a very small stake as an investment and it might no have been worth the effort.
Let's see, spend about $3 billion (for units and debt) and get $375 billion in EBITDA... Maybe he will.
Cedar Fair Provides Positive Surprises At Investor Conference [View article]
"See: Warren Buffett -- I think he would beg to differ with you, Crunching. And I'd say his thinking long term in regard to investing has served him quite well. "
Assuming we are not referring to his purchases of entire companies, I don't think he and I differ very much. He buys stock with the INTENT of holding forever. He likes to buy companies with a protective moat, and Cedar Fair certainly has that - there hasn't been a successful major amusement park built in the last 25 years according to FUN. And, he buys the management of the company. I like the experience of the FUN management team.
He buys properties he understands and stays away from high tech. FUN is pretty easy to understand and not particularly high tech.
If the reasons he purchased stock in a company are no longer valid, he sells. You are worried about an event that MAY occur five years from now. I have no idea how you select your investments, but there aren't too many choices out there that don't face potential risks more five years into the future. I'm willing to live with a bit more risk than that.
"We have fundamentally different viewpoints on the basics of what makes for investment success."
We certainly do, and that's fine with me. Good luck to you as well.
(You probably won't like my other article on FUN that will be published soon.)
Cedar Fair Provides Positive Surprises At Investor Conference [View article]
I should have been more specific. Kinzel retired as CEO on January 3, 2012 and is out of the normal decision process. I expect he will cease being a director when his current term expires.
"Cedar Fair is much more akin to Six Flags, where a constant flow of new attractions assures long term repeat visitors."
Maybe, but Six Flags - or at least the Six Flags Great Adventure park in my area - has also changed very little over the years. There is such a large population to draw from that it doesn't seem to matter very much. Families go back because at different ages their children enjoy different rides or attractions and then new families take their place. And, in my view, I don't see all that much difference between theme parks. I've been to Disneyland, Knott's Berry Farm, Great Adventure, Dorney Park, Hershey Park and a variety of lesser parks. The highlights tend to be the thrill rides - that's where the lines are the longest.
"It is better to think long term than short term. Smart people live their lives in this manner, and most people advise their children to think this way. And yet, FUN is being operated like a child who cannot delay gratification --always demanding dessert before eating a healthy meal."
Smart people budget and plan according to future expectations. Most save too little for their kids' college expenses and their own retirement and take on huge debt and others have gotten stuck in bubbles and foreclosure so I guess most of us aren't too smart. Will FUN run into problems in the future? Maybe, but an investment decision is not made for the very long term.
Ignore the FUN revolver maturing in 2015, it is the nature of the business with an overwhelming portion of the revenue coming between May and October - so the revolver was zero at year end. Otherwise, they have no debt maturing before 2017 and that's 5 years out.
You state "It is the long run I am concerned about, and recall, the long term is made up of a lot of short terms."
5 years is a long time. Keynes said in the long run we're all dead anyway. The market may be a discounting mechanism, but it rarely discounts out beyond one to three years these days, let alone 5 years. There will be plenty of time to continually reassess the performance of FUN under Ouimet and the new management team.
In the meantime, it seems to be a very sensible investment for those looking for income.
A SiriusXM Share Buyback? [View article]
"By your response, I conclude that you do not acknowledge the existence of math and you have a problem understanding corporate decisions."
And you would be wrong on both counts. I have been intimately involved in major decisions at corporations of various sizes. I ran the numbers on joint ventures, major divestitures and other significant financial decisions. I constructed models and had to know the logic behind the alternatives and decisions so I could determine how to run sensitivity analyses. I also valued private businesses using various capital valuation models as part of some of these exercises.
"It is in the interest of liberty, taking into account both siri's company and share potential to do nothing with their 40% other than agree to a reasonable and mutually beneficial buyback plan with siri. "
Absolutely not true. Right now Liberty has veto power and board representation based on a number of shares. Those rights get altered when their share count declines. You refuse to recognize the rights that Liberty has and you refuse to acknowledge how valuable that FCF is to Liberty if they take control. Once getting to majority control, they get to make unilateral decisions on how to spend the money.
"Once siri starts buying back preferred and outstanding shares, liberty stake in terms of its value would be going up in spite of the reduction in the share count."
This logic is flawed. The value of a company is based on its revenue, earnings and cash flow and how it grows over time. If Sirius, the company, is worth $15 billion based on these metrics, it doesn't matter whether there are 15 billion shares selling at $1 each or 1 billion shares selling at $5 each. A company does not magically become more or less valuable based on the number of shares outstanding. And neither should a 40% stake in that company.
"Whatever Maffei may hope for. Incidentally, to address a big conference by saying that siri's stock, 40% of which they own, is hypocritical and speaks volumes about his intentions. "
You are refusing to listen and/or hear what Maffei says. He told you all you need to know regarding a decision by Liberty as it pertains to their investment in Sirius. He answered questions when asked and you accuse him of being hypocritical. He said he won't overpay for Sirius, that buying the last share was too expensive and that he thought the shares were expensive (or richly valued or something) but that it would grow into that value. He spoke openly about the options they have at their disposal. And despite that he said selling the shares is not a logical option, you continue to create situations where Liberty will sell shares.
A SiriusXM Share Buyback? [View article]
"CN, the fact is that a decrease in outstanding shares guarantees that there will be an increase in the eps. "
Not exactly. You are assuming there is no change in earnings and relative to a static case. There are impacts on earnings from a buyback. These could include brokerage commissions, loss of interest income on cash, interest expense on debt that wasn't paid down, etc. In some cases, companies borrow to buy back shares and obviously that would be another expense.
If EPS was zero, a share buyback would drive it to a negative number. If there was a loss, the EPS would become more negative. But that isn't really the point.
The issue is what is currently built into the share price. If a buyback is announced, there will be a short term pop in the price of the stock. Historical studies show that to be the case. The problem is that the pop usually doesn't last.
Companies that execute buyback programs do so because they don't want to pay dividends (and there are some reasonable issues around limiting dividend payments) and don't have other uses for the cash. That indicates that they can't find reasonable growth opportunities to reinvest in the business. That's rarely a good sign.
If Sirius doesn't meet TOTAL earnings growth (not EPS) expectations of the market, the share price will drop even if a lower share count happens to cause a rise in EPS.
Frontier Communications: There's Still Time To Buy The Dividend [View article]
Mea culpa! The CBOE would agree with you. They currently show FTR strike prices of $3, $4, $5 and $6 as at-the-money options.
"Love the strategy."
Thanks. It gave me a good deal of protection on my last purchase when the shares were at $5.31 and my net cost was under $4.60. Although with the shares down to $4.20, it wasn't the best move. Right now I'm looking forward to a bounce in the price after the earnings release and conference call in 2 weeks.
A SiriusXM Share Buyback? [View article]
"it is also plausible that Liberty would accept such tax liability since as a result of the share buyback the share price would increase(offsetting the tax liability) "
You are basing your supposition on facts not in evidence. Both the articles I read and referenced say that a price increase is UNLIKELY based on historical probability because corporations, by and large, do such a miserable job in buying back shares. So, the idea that a potential price increase would offset a tax liability may just be wishful thinking.
A share price increase will occur if subscribers, revenue, earnings and/or FCF outperform market expectations currently built into the share price. Reducing share count doesn't guarantee that will happen.
A SiriusXM Share Buyback? [View article]
"I was under the assumption that Liberty would need to complete a RMT, in order to gain control of Siri's FCF for outside purposes. "
Not sure what you mean by "outside purposes." I think you may be confusing the purpose of the RMT. The RMT is meant to preserve NOLs and use them as a tax shield against the acquirer's (Liberty's) earnings. Nothing would prevent Liberty - as majority owner - from using the FCF in a "reasonable" manner. A majority owned Sirius subsidiary can use its FCF to buy back shares, pay down debt or buy other assets. And if Liberty owns a majority, nothing prevents them from doing any of the three within the Liberty-controlled Sirius subsidiary.
At some point Liberty may want to spin Sirius back out to shareholders. That's where a lot of the issues around the NOLs and any acquired assets make the RMT (or in some cases where the NOLs are not a driving issue, a reverse merger) an interesting option for Liberty.
A SiriusXM Share Buyback? [View article]
"If we agree that math does exist "
We do. But the issue is not just share count, it's the EPS. A reverse split reduces share count, but should do nothing to affect the value of one's holdings. The point is that it is not just the raw number of shares outstanding, or the diluted 6.5 billion shares, it's that each of them isn't earning very much. And, if Sirius did a reverse 1:6.5 split, there would be a total of 1 billion shares and each would be worth about $14. It's just not particularly useful.
I'm sure you were actually referring to a buyback as a means of reducing shares, but that's not what you wrote. Regardless, Liberty has no motive to participate in a buyback (more on this below).
"If we take 2011 results, at half of the share count siri would have made about 16 cents per share. What is wrong with that."
Nothing, except you would need to have $7 billion to buy those shares assuming the price doesn't keep moving higher.
"If we dream for a moment and, say, that the share count were 1.1B (as it was with sirius before the merger)"
But that's all this is ... a dream. You would still have two companies competing for subscribers and content. And it is most likely both would be bankrupt.
I'll repeat what I wrote in response to a comment by headybaldguy. Liberty likes acquiring stakes in other companies. If they use the SIRI shares as "currency" to acquire these stakes, there is no taxable event created. If they sell their shares they have to pay taxes and end up with less "currency" to make acquisitions or acquire those "stakes."
It is far more logical for Liberty to acquire Sirius and use the Sirius FCF to buy other things for Malone to play with. Or, after an acquisition of a majority position in Sirius, they can proceed with a share buyback. Liberty wants to own Sirius as much as you do, only they hold all the cards. Mel is playing against a dealer with a pat hand and a marked deck.
It's not about patience. I think Liberty believes that they can make more money by taking control rather than being patient. They certainly proved how astute they were in getting the 40% of Sirius along with all their veto rights.
And, anyway, Maffei said it is not a logical option to sell their shares. You may not like it, but it is far more beneficial for Liberty to take control of Sirius than to participate in a buyback.
A SiriusXM Share Buyback? [View article]
"...Liberty would still own 40% of the diluted stock so in essence it would not be selling shares per se,..."
Maybe, but I think it was the tax liability rather than a decrease in ownership percentage that was the issue. It seems to make more sense to use the shares as currency to buy something rather than convert them to cash, pay taxes, and have less value to go and acquire something else.
(It's actually 293 million shares behind the note.)
A SiriusXM Share Buyback? [View article]
"I not sure if Siri is a good long term investment because of all the uncertainties. "
I think Sirius is a fine long term play for most investors. Traders who are nimble can also make lots of money, but the old Wall Street adage says "Traders die Broke."
A SiriusXM Share Buyback? [View article]
"John Malone and Greg Maffei are both excellent businessmen. If, indeed, a Liberty takeover occurs, I think shareholders would be in very capable hands"
The LMCA shareholders will be fine. I think the SIRI shareholders who were hoping to benefit from a pure play will be disappointed.