milanjs

Sirius XM Radio's Q2 Call Keeps Investors Guessing

I am not really sure about what is happening with the stock. But here is what is apparent.
1) Sirius XM management did not provide any forward looking comments designed to increase stock desireability. (looks like they want the stock to trade lower, for the time being)
2) The valuation of the stock (from a longer term perspective) is way too low - looking at standard valuation practices ( I won't go through the formuleas) should be much closer to $3.00 per share. Considering the debt taken on by the company for the merger, it should be of little concern since the debt is long term, due in 2014 (if I read the release info correctly) and the company is projected to be profitable by 2009 - so should easily be in a position to repay the long term debt.

Looking at both these facts, I do get the feeling that Sirius XM may be responsible for the stock pricing lower. This leaves me with the impression that the company may be using this situation to possibly buy shares at the depressed price to improve the companies long term position when the merger debt becomes due (I don't quite understand how they structured the deal - but one thing is clear - they didn't issue more stock but used borrowed stock to finance the deal. Hypothetically, if the financed price was at $1.87 per and the company can aquire up to 50% of the stock used as collateral @ $1.40 to 1.45 and then can get a kick up to $2.20 to 2.30 then the debt is completely covered, with only an outlay of the initial cost of shares (far less then the inital estimates of 4.3 billion when the stock was trading @ about 2.50). Any kick above 2.30 is gravy. I am foggy on how they are structuring the details, but I believe that Sirus has to provide Sirius stock to the XM stock holders - only way they can do that is buy it, unless they issue more stock. Since they 'borrowed it' for the merger - they still have to buy it in order to satisfy the conditions under which they borrowed. Am I wrong?

If some one has a better picture, be glad to listen.