The Plausibility Of Sirius XM Manipulation
Each week it seems brings a new clue into the potential manipulation of Sirius XM stock. I had mentioned several weeks ago, that Goldman Sachs was the current holder of approximately 130 million dollars worth of 300 million dollars in Sirius convertibles, due in February of 2009.
It is the root cause cited by message board bashers who want to instill fear and manipulate the stock price, by making unfounded statements regarding Sirius XM and bankruptcy protection. Most are quick to point to an SEC filing that refers to the period ending June 30, 2008, in which the company provides a disclaimer regarding the potential inability to refinance the bonds.
The reason these message board statements are unfounded are many:
- Sirius XM CEO, Mel Karmazin appeared on national television after the filing and made a public statement that it is not an option. Troubled companies do not do this.
- Second, Mel has personally been buying Sirius XM shares.
- The company is increasing revenue while decreasing costs. The balance sheet is heading in a positive direction. Failing companies do not have this luxury.
- In the company’s most recent conference call, Mel outlined an extremely detailed plan for removing the convertible bond issue completely. Making the issue a moot point.
Which brings me to the point of this article. A lot of attention has been placed on the companies forecasts 18 months from now as the reason for decline of the stock price. It took an astute poster on the SiriusBuzz forums to lay out another plausible scenario, which again leads us back to the 2009 convertibles held mainly by Goldman Sachs.
The main point of contention is one particularly overlooked statement made by Mr. Karmazin at the recent call. Mel states:
“…You shouldn’t be surprised that the holders of the convert have been very anxious to talk to us about, “gee, we’d like to exchange that for another piece of convert”. That is not the interest that the company has…”
Mel told the bondholders, such as Goldman that they have no interest in diluting the stock further and that the company will not be paying more interest with a new convertible offered at a lower strike price. That was certainly enough to raise an eyebrow. It also means no dilution for the “short” story.
This can’t sit well with Goldman, as I imagine anyone would want a piece of a company with multi-billions in revenue on the cusp of profitability. I’m sure they would embrace the idea of being paid to buy that company’s stock at a substantial discount. I know I would!
The question is, how far might they and others go to force such a move? With no hope of receiving a new convertible, the only way to make money with the existing one is to supress the stock price to the benefit of their own short position. Each dollar the stock rises or falls represents 130 million dollars to the bond bullies. I suggest that any reader, who wishes to know more about this potential issue, visit this thread at SiriusBuzz to learn more.
Positions: Long SIRI
No Positions: GS
Nonetheless, GS will be in a position to bully until SIRI arranges alternate financing. And GS could potentially impact the negotiations between SIRI and another lender by the means you discuss.
No doubt, based on SIRI fundamentals (lower expense, good sales growth), Mel can pull this out – BK is not likely. However, it will take some great negotiating on the part of Mel and his team to pull it out in a manner that doesn’t dilute the stock further – that’s the trick.
Yeah, but another dollar down and we’ll be BELOW a PENNY!
Goldman can’t want or expect this to happen can they?
Wouldn’t it behoove them at this point to just cover their short position and go all in LONG?
I mean if it holds true that they believe SiriusXM’s future is bright…shouldn’t they just stop trying to bash the stock down?
Unless like you say, they are trying to force Mel’s hand to sell them more converts.
Of course I’m biased being a small investor and all…but enough is enough.
I don’t see why Goldman just doesn’t cover and then go long. The potential upside seems even greater for them than the convert scenario.
Imagine if Goldman started buying like crazy and upgraded Sirius in line with the $6-$9 price of other analysts?
The stock would EXPLODE out of the basement it’s been in the last few years.
Probably won’t happen tho. Just like Superman has Lex Luthor, Batman has the Joker and the US has Bin Laden…Everyone needs a villian…I guess GS is ours.
Friggin…
They can’t go long as long as they still hold the converts…
So basically GS will never give up then?
What happens to GS’s converts if Mel manages to get a GREAT refinancing deal?
How can Mel beat GS at this point?
Without referencing the details, I recall 4.40 or thereabouts being the conversion price.
So right now, they are up about 400 million in their short position. the stock would have to go to 8.00 a share or so to give them the same return if they went long. That’s not going to happen.
If they are pissed enough about not getting the investment banking business from the convertibles, they would have no problem with the stock going to a penny. If the stock goes up to 1.00, they lose 130 million dollars. 2.00 they lose 260 million.
Assuming this scenario has any merit, they will give up when the convertibles are redeemed. In February.
Wow. So that pretty much confirms my suspicions that GS will continue to play this game until February.
As much as I loathe to say it, maybe Cramer was right then about nothing happening with the common until February.
Still, I’d love to see the planets align and one or more of the following to happen….1) Mel gets a GREAT refinancing deal way before February 2) Joins forces with Microsoft, Google or some other larger company 3) New products and promotional campaign helps rebrand and re-ignite interest in the stock….and finally 4) The 3rd and 4th Quarter surprise everyone with better than expected numbers and reveals Mel’s “underpromise and overdeliver” strategy to be true.
How far will GS try to push this stock down?
If GS keeps the pps under a $1.00 and Sirius gets delisted that will scare a lot of investors into selling.
Trying to get refinancing when you are delisted and on the pink sheets is certainly not going to help.
The sooner then later remark by Mel has such great importance now if we want to keep GS from just ripping the rug right from under the feet of this company.
With the growth that the company has now and the cost savings we can see the light at the end of the tunnel. I just hope we get there.
I wish the Dept of Justice would look into the actions of GS.
friggenragen–yep, UPOD is Mel’s strategy by all accounts, and a good one that has so far played to get closure on the merger without significant “countermeasures. UPOD post merger, though, is in part the reason for the depressed SP (i.e., last conf call.
homer985–awsome crtical thinking! If true, makes clear why GS and cronies in the media are trying to take the company down.
Brandon–so, if homer985 is correct, is taking care of the Feb debt early feasible? Then what … focus on May?
Brandon–PS: I checked your posting about the above on Seeking Alpha, then the comments. Sadly, commentors on SA are not in the same class as those on this blog. Keep up the great work.
Brandon,I don’t get why GS can’t go long. I might not understand converts right.
When the converts are issued, I thought they go and short the stock in the market. Can’t that position be covered even if they still have the converts?
Couldn’t they buy more stock after that too?
Thanks.
Palin…
Just so you know, Americans club baby calves, baby lambs, and baby chickens. Politics aside, Goldman is stuck with these converts. They are in the money on the short side.
To cover now puts the original bond investment in danger if the company defaults. So they have to remain short against the bonds.
They are already up several hundred million on their short position, and can’t get out of it until Feb.
I think they’re betting on the wrong horse. I’d be willing to bet they are the ones buying calls in volume to protect against any upside swings.
Brandon. The new converts issued at merger completion were very much concealed to the average investor. Once they were divulged………well we know what happened after that.
So my question? Is there any avenue, analyst company official etc., that can be counted on to give an update as to where the company is with regards to the February converts? Any current spreads that are posted daily as to what it costs to borrow etc. I remember Mel stating that the cost to borrow escalated the day he closed the deal.
Also Brandon, volume seemed low last week. Didn’t you think. Conviction to the down side seemed limited.
Time for some optimism. All of the items listed below could happen on or before Oct 6:
1) Mel pays off the Feb 09 converts in full by either negotiating bank financing or by loaning the company the money himself (these converts are $300M and Mel is worth >$8.5B)
2) Once the Feb 09 converts are paid off, GS closes out their SIRI short position that was for the converts. This would lock in the GS short gains so they could go long SIRI. GS would then be in a position to profit from SIRI PPS going up.
3) Mel makes arrangements to extend the May 09 bank debt
4) Mel reminds everyone that he will NOT address the Dec 09 converts until later in 09 (after the SIRI credit rating improves)
5) The SiriusXM al-la-carte radios hit the stores on Oct 6th
6) The “Best of SiriusXM” program begins on Oct 6th
7) The SiriusXM Marketing blitz begins on Oct 6th.
8) The holiday season begins shortly after Oct 6th
Now image if Mel was able to pull all of this off on or before Oct 6th. All of these announcements would hit in a two week period (or smaller). It makes me smile just to think about it. It could happen…
With the Wolf Packs
attacking BSC LEH AIG and so many other questionable firms it is certainly possible that SIRI has joined this favored club.
I am also a skeptic regarding manipulation but the price action of
SIRI right before and after the FCC approval is certainly suspicious.
In fact I called SIRI the day of the
approval and warned them that the shorts must be fought more aggressively.They sarcastically told me that no one thinks there is a conspiracy when a stock goes up.I told them I was worried that the NAB
or supporters of Clear Channel may attempt to get Injunctive Relief from the Court of Appeals to stop the Merger.
They told me after the close of trading
XMSR will be history.
They said the Merger is done they will not be able to stop the merger.
When Mel gave his CC
he admitted he was afraid of attempts to stop the Merger
and that is why he agreed to the unattractive financial terms.
Needless to say the SIRI people I spoke to that day were either not truthful or were not informed.
I suspect that either Goldman or other interested parties will use all means to pressure Mel and Company to maximize their short profits.
I suspect they will
attempt to keep SIRI under PAR for over 30 days so that a Delisting notice
increases the pressure on Mel.
We are stuck in the middle of a high stakes game of financial chicken as the wolves rule the roost.
I believe the ending will be positive for all longs but we all will need Dramamine.
Keep in mind the Feb Converts cannot be called early. So even though Mel might be able to secure financing for the $300mil, he wouldn’t be able to pay it off until February.
This may sound stupid, but if MEl is in fact worth 8.5B (which I have no proof of), wouldn’t it be in his best interests to buy into the company or lend the money at a reasonable rate? If they resolve the funding issues going into next year, the price of the stock will go up, increasing the value of his investment. It would send a strong signal to the street and screw GS in the process.
I concur. If Mel is TRULY worth 8.5 BILLION….Why the F@#k wouldn’t he END this right now?
It would speak VOLUMES about his commitment and belief in the company.
It also makes the 2 million shares he just bought kinda wimpy if you ask me.
You presented a scenario, that if true, is borderline criminal. What are we, as investors, going to do about it?
If SIRI was in danger of being de-listed wouldn’t Mel do a reverse-split rather than take the stock to the pink sheets?
kent…
Here’s a better idea. Use the 6 months and 30 days the company has before delisting is an issue to raise the stock price. 210 days and even that can be extended by just one day of the stock trading above 1.00.
In other words, delisting is not a threat nor is a reverse split. By the time the possibility became a reality, the 2009 febuary converts will have been redeemed, and the 2009 baseball season will have begun.
I’d like to make two points. First, companies make statements all of time pointing out that they are doing fine and within months if not weeks or days they are going belly up (reference Bear Stearns, Freddie and Fannie and now Lehman.) I’m not trying to compare Sirius with any of them but just want to point out that it happens. Secondly, the rich get richer. Even more so in bad times. Not to say that Mel wants the stock to go lower (already having invested in the company) but he along with other deep pocket people will be able to buy even more shares at lower prices. I’m averaged in at much higher prices without funds to keep averaging down at this point but if I had the resources I’d be buying like crazy. Oh well, I hope our waiting through February goes by fast.
BTW, a little off subject but I was checking out the Sirius backseat TV offering and wow what potential. I hope we can get the bandwidth someday to get more channels.
I agree with socalrunningfool the converts were a surprise to most investors.I know I was blown away.
I also thought the stock looked liked it bottomed out last week and started to hold it’s own
If the stock maintains or goes up tomorrow with the increases in gas prices and the Lehman news that will be a very good sign.
In my post above I say, “Sadly, commentors on SA (Seeking Alpha) are not in the same class as those on this blog.” So as not to stereotype, I amend to say “some commentors” because some are clearly more focused on causing interpersonal distractions, or on playing the blame and flame games, or on just telling lies to try an demoralize longs. My comment regarding SA applies equally to this blog, which I have come to value. I carefully read and digest reasonable posts including those by seemingly knowledgable shorts (following the old axiom: “Know your enemy”). But I also have flagged some commentors as drooling nut cases or a plain nusance or both and scroll past their entries to avoid noise. To all who post with sincerity and dialog in a sharing and/or teaching way, thank you; keep at it. I’m long SIRI, averaged down to 1.50 and about buy more while the price is so attractive and the company appears to be holding its own. No one and no big bullying organization is driving me out of my SIRI position–Sirius XM does not face Lehman’s fate (see CNBC website, confirming press reports that Lehman may file for bankruptcy “as soon as this evening.”) From knowledgeable long’s posts it’s pretty clear that Mel and company will not go down in flames and that we longs remain relatively safe, if not satisfied on paper for now. Long SIRI. No position LEH
mel just said this about taking the company private in the wall street journal:
Given Sirius XM’s low stock price, Mr. Karmazin said he would love to take the company private. But given the state of the credit markets, “How do you find [the money] today?” If the company were generating positive cash flow, which he expects it to do for the full year in 2009, privatization would become much more feasible, he says.
my question is….what would happen to the shareholders if he took the company private?
Hmmmmm Mel would like to go private??????????
totally confused – Why is there an assumption that GS would want to suppress the stock price (for their short positions on the Feb 09 converts) and then it would stop? I thought at the merger closing there were ADDITIONAL converts issued (many in fact) which would be redeemable much later than Feb 09 – why wouldn’t the inclination and desire to short continue due to these converts which have corresponding short positions associated with them?? help – please explain. Perhaps some examples with mock stock prices would help me –
Here’s the link to the story:
http://online.wsj.com/article/.....l?mod=MKTW
Vaporgold. I agree that the pps in the coming days is important. How the “F” did we get to .95 again? I’m sure I ate a mushroom. lol. Anyway good luck to you.
Hey friggenregan. We used to all think Mel was posturing during the merger days. That turned out to be a big “Not”. However, dealing in the real financial world which he has excelled at, I say although currently I am pissed off at the big toothed big haired ceo. Anyway, could taking the company private be big time posturing regarding the converts and GS etc. Maybe there is a message there. I got his message right up my you know what on merger day. Hopefully this message goes up a shorts this time.
Private? This appears to be a new twist. Brandon, Tyler any insights on this one?
I know Tyler touched on the very topic of privatization last week on the conference call.
My feeling is that Mel is “shopping the company.” I think he’s quietly putting the word out on the street that Sirius XM is willing to entertain offers.
Whether the company gets bought out by a google, or a blackstone, there will be a premium paid to shareholders.
The downside of privatization is that the stock will no longer trade after a buyout. It would probably mean the end also of siriusbuzz, siriusbackstage, satwaves and orbitcast.
The upside is the money. I’d imagine Mel would want a bid of at least 4.00 per share to make himself whole.
Knowing what I read on Mel and the way he has been known to act, if there is anyway he can screw people that have tried to screw a company he is running he will do it, as long as it did not cost the company anything to do it. As I have said on Seeking Alpha a billion is not alot to ask for in a market of this size even with the credit market being as bad as it is. As I said before SIRIXM really only needs about 400 million to be refinanced anyway. The rest is just asking for an extention. Brandon I know you thought Mel made a bad comment, when he said; I do not want to use my own money to refinance the company. I believe that was Mels way of saying the amount is so little that I could do it myself if I had to.
So it all comes down to, will SIRIXM be able to get the financing done one way or the other, I think so. The real debate is weather Mel will be able to screw GS or not.
Not very good PR for Goldman to be cannibalizing a client. Don’t you think this enters into the manipulation scenario? Certainly they could agressively short the stock to protect their converts, but beyond that, the logic gets a little shakey.