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Thread: Siriusly Splitsville

  1. #1
    dread is offline
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    Siriusly Splitsville

    So here we are as investors, almost one year into the merger and so much has happened.
    For one, we have seen the massive wealth destruction in the markets, and bubbles bursting everywhere. Whether you are in commodities, or technology, everyone is feeling the pain right now.

    This past week has been interesting, and for me personally, very confusing from a macro market view. From day to day, someone from Washington would come out and say something about the economy, and sure enough the market would respond, either in the negative way, or positive, as the last week has shown. Still the VIX did not break below 40, it should be below 20 under normal market conditions.

    A lot of long term investors have been averaging down on their favorite equities but for the SIRI/XM shareholder, this is our only weapon against the feared R/S. While everyone else continues to load up on shares, we have some serious dilution with our PPS. And watching it being manipulated day to day is clearly frustrating, not to mention the SEC is completely incompetent in their ability to monitor the markets.

    So here is what we are facing and know:

    A potential R/S of no less than 10:1 and no more than 50:1 ratio.

    Bankruptcy is off the table thanks to Mel and Malone.

    Manipulation of the PPS, and massive dilution.

    NASDAQ rules for delisting have been waived for now.

    Mark to market / Uptick are the rules being discussed.

    Iphone / Ipod application due for 2Q.


    So I listened to the CC on Thursday, one thing that was not discussed, and it did not break my heart to have the issue over looked, was yours truly. Mel stated last year that the R/S was for listing purposes only. But now that our dear company has had trouble refinancing the dept, and dilution followed, these issues, really up the stakes for a R/S.

    Now we stand here at around .20, with one more dark cloud hanging over us. With so much dilution floating around, a reverse split would be welcome under normal market conditions. Doing it right now would be a death sentence in my opinion.

    Waiting until the last possible moment would also reek of desperation.

    As share holders, what would be your optimal scenario for executing a R/S?

    Also depending on PPS, what ratio, would be ideal for your cost average?

    In my opinion, get over 1.00 then depending on market conditions, execute the R/S.

    Long SIRI / 7,500 / 2.00av

  2. #2
    trippingthespeculatingpos is offline
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    Joined: Dec 2008 Location: San Antonio Posts: 2,884
    the uptic rule will stop alot of the manipulation, no rs, we created this float now we have to live with it. only rs for sake of not being delisted and no more than a 10:1

  3. #3
    Hopeful is offline
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    No R/S, this stock can and will regain a respectable PPS with current and future dilution. This stock trades on speculation, and it is speculation alone that will drive the PPS over $5.

    NASDAQ will issue the market cap requirement, thus removing the $1 PPS rule, no need for R/S.

    IMO

  4. #4
    imromo24 is offline
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    No R/S. This company road us longs into the ground. I already had more in it than I wanted and kept adding to average down (due to my unsophistication and not selling then buying back) Nonetheless, I am in it for the long haul and I don't care if it takes 5 years, Sirius XM needs to take care of the dedicated shareholders who saw this through the worst.

    Mel was quiet, and when he piped up he sent messages of hope and promise, with dates of change to wait for, only to have the market drive the price down.

    Now he needs to focus on the company and building up the share value, not copping out with a R/S in desparation to look accomplished.

  5. #5
    homer985 is offline
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    I'm not a fan of RS's... but I see no way around it. Run the numbers...

    Sirius has given FCF guidance of $1.4BB in 4 years. Using a basic DCF calculation, assuming a discount rate of 12%... you're only looking at an EV of maybe $15BB in 4 years. That's a pps of just $1.88. And that assumes that there is no more future dilution over that time period too.

    If you don't care that the stock will stay in the range between $0.50 and $2.00 in the next 5 years... then a RS is not for you.

    However, I believe it is more important to get the stock above $5 so that it can bring in a more stable type of investor... being the deep pocket instituations and those who wish to margin it.

    That is why I do not agree with those here. As long as there is over 6BB shares in converted equity -- this stock will be relagated to prices well under $3.

    Food for thought... every $0.01 move this stock makes -- is about a $64MM change to the EV of the company. IMHO, once the street figures out an appropriate value for this company and what its terminal growth will truly be (and prices it so) -- the amount of equity outstanding will be a lead weight that will keep the pps in a very tight range for a long time.


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  6. #6
    homer985 is offline
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    Quote Originally Posted by Hopeful View Post
    This stock trades on speculation, and it is speculation alone that will drive the PPS over $5.
    No way will this stock ever be able to support an EV of $35BB. It's future FCF estimates and earnings potential would never support it.

    Hype and speculation? That was when no one knew about these companies or what their true potential could be. Their earnings potential (if it ever becomes trusted by the street again) will be well known by then, removing speculation. Furthermore, hype will be a non-factor too, barring a major change to the business model. These companies are not relatively young and unknown anymore. XM has traded for coming up on 10 years now and Sirius much longer. The hype and speculation was compounded by a strong bull market and the unknowning of what the companies could be. If Sirius XM are able to turn things around -- compounded by the current bear market -- their potential will be very evident, thereby removing the speculation and hype.

    I'm sorry, but an EV of $35BB is just not supported, given the current busines model.



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  7. #7
    JohnnyIrishXM is offline
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    Homer,i agree with most of your numbers...You are basically saying if you have a cost avg per share of $1.88 or over you are never getting your Whole investment back,correct?But i don't think there are really that many people who are still in this stock,(other than Mel) ,at those prices,relatively speaking,I know alot on this site are tho.As for me at 400k at .26 avg,I'm in the don't care crowd and would be thrilled with you non-R/S theory..However if you could what kind of Price extend out with a $1.00 sp then 1-10 R/S do you see happening.That would be 800Mil shares with full dilution at $10 sp or 8 bil market cap,with projected FCF of 1.4bil in 4years.what is EV then?
    Last edited by JohnnyIrishXM; 03-14-2009 at 12:40 PM.

  8. #8
    TWAsiri is offline
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    Homer,

    In some of the recent posts I have seen a couple folks indicating that they are convinced a 50:1 split is a given. You wrote a very convincing post somewhere explaining why 15:1 is more likely. Can't find it. Could you clip and paste it in this thread? It made a lot of sense and is relevant to these discussions.

    Thanks.

  9. #9
    imromo24 is offline
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    Quote Originally Posted by homer985 View Post
    Food for thought... every $0.01 move this stock makes -- is about a $64MM change to the EV of the company. IMHO, once the street figures out an appropriate value for this company and what its terminal growth will truly be (and prices it so) -- the amount of equity outstanding will be a lead weight that will keep the pps in a very tight range for a long time.


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    and not until this happens should a R/S be considered...let the value stabilize

  10. #10
    Demian is offline
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    Quote Originally Posted by homer985 View Post
    I'm not a fan of RS's... but I see no way around it. Run the numbers...

    Sirius has given FCF guidance of $1.4BB in 4 years. Using a basic DCF calculation, assuming a discount rate of 12%... you're only looking at an EV of maybe $15BB in 4 years. That's a pps of just $1.88. And that assumes that there is no more future dilution over that time period too.

    If you don't care that the stock will stay in the range between $0.50 and $2.00 in the next 5 years... then a RS is not for you.

    However, I believe it is more important to get the stock above $5 so that it can bring in a more stable type of investor... being the deep pocket instituations and those who wish to margin it.

    Homer,

    I agree with you about the benefits of having the share price at a more respectable level, attractive to institutions and marginable. I don't know if those that would buy SIRI on margin should be classified as a more stable type of investor though. What specific institutions don't buy stocks under $5? Looking at the institutional ownership of SIRI shows that many institutions do buy stocks under $5. Market cap is market cap - no matter how the share float is sliced and diced. It's really all about perception.

    It could be argued that the low share price of SIRI down in the pennies offers the perception of value. I personally know retail investors that only buy "cheap" low share priced stocks because of the perceived value. They would never consider buying a stock over $10, because in their mind it seems too expensive to them. It makes them feel better owning 1000 shares of a company rather than 100. They see more potential upside and feel that they have a larger stake in the company. A reverse split may take some of this perceived value away. The stock not being marginable may be a good thing. How many would have had forced liquidations from margin calls during these recent price swings?

    Mel has stated that he sees no shareholder value in a reverse split and that one would only be used to satisfy the Nasdaq listing requirements. Now that the Nasdaq has extended the freeze on the minimum share price requirement - maybe even permanently, how could Mel do a reverse split without going back on what he said? What would be the reason he would give?

    Didn't the combined companies have a combined market cap of around $20 billion at their peaks? That was with debt continuing to accumulate and no FCF, let alone actual earnings. They were also separate companies locked in an expensive game of competition with each other during that combined $20 billion market cap. Ok, so speculation drove the share prices up to unsustainable valuations, but is there no premium that should be given now that they have merged? If speculation drove up the share prices of both companies when they weren't making money and locked competing with one another, what about when the merged company starts posting actual earnings? Now that bankruptcy is off of the table, I believe that more money will continue to come into this stock.....

    If a reverse split is enacted, it's all about perception and timing. When would be the best time to do it? Would it be better to do it now with the share price so low - so the perceived upside is still there? Would it be more dangerous to do it after the stock gets back to just under a dollar? Maybe it wouldn't matter when they did it, as long as it was combined with good news? If it became marginable overnight with a RS on the heels of good news, the new margined money could lift up the share price. If the RS is done at the right time, it could be a positive thing. RS's are usually a sign of desperation and rarely are a positive, but that's not always the case. It worked for Priceline! Could it work for SIRI? Could the stock get up over marginable levels on it's own without a RS?

    I really don't care if there is a RS or not - as long as the timing is right and the market cap continues to rise the same or more percentage wise....
    Last edited by Demian; 03-14-2009 at 12:17 PM.

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