Siriusly Splitsville

[xitvp]

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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Homer,

Are you considering possible new synergies with DirectTV and the Iphone Apps etc. when you evaluate where you see the stock price going and speculation of the stock price.

Your threads make an awful lot of sense in terms of reality vs. speculation (pumping), but I am wondering if you are coming from a this from a "how the company looks now" or if your thought and oppinions are considering the future with Liberty involved?

It's apparent to me that there is some tweaking of the business model that is currently taking place (finding more creative way's to add subs apart from relying primarily on car sales)...this along with what seems to a weaking of terrestrial radio is what is very interesting.

Just wanted to get your thoughts....

[homer985]

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?

Johnny... there are about 6.36BB fully diluted shares right now. A 1:10 split would cut it to 636MM shares.

The EV I was estimating from FCF of $1.4BB was around $15BB. Removing the NET debt from that and dividing the remaining amounts by the fully diluted cap (636MM shares), puts them valued at around $18.87 pps. Up from the current value of $2.00 pps, again assuming a 1:10 pps.

The % is the same -- just IMHO, it makes the stock more available to more investors. I believe that there are more possible investors that would rather invest in a stock over $5, than those who would rather invest in stocks below that level.

That is the difference and the reason for my position.



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[homer985]

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.

TWA, it was more of a discussion of the EV and outstanding sharecount than anything. A 1:50 split, would take the float down to 127MM shares (with Liberty holding 50MM of those)... that's to illiquid, IMHO. A 1:10 split would take the float down to 636MM shares (with Liberty holding 254MM of them). Somewhere between 1:10 and 1:25 would be the best case scenario.


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[homer985]

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

You know, imromo, I agree. I can't argue with this belief. I'm really not abdicating doing it sooner. Just before the 12/31/09 deadline... and also before the SEC suspension of rules runs out... as I believe that that is going to be an issue eventually. Sure they could suspend it indefinately, but then the 12/31/09 deadline will come into play.

I believe that the true value of the company could come in to play by the end of this year -- provided the company has continued improvements in performance and demonstrates true synergies that are obvious to the common investor.



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[JohnnyIrishXM]

Homer

I factored in the full 8bil dilution because i feel they will do some kind of debt for equity or sell remaining shares for capital before R/S at $1.00 or even after,as i think unissued shares are not R/S accountable?

P.S-never mind about after,I forgot about 40% stake for liberty comes into play..can't be done

[homer985]

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.

Demian, there is a whole nother level of institutions (with deeper pockets than you can imagine) that never touched either company in their previous forms in earlier years. You bring in those bad boys and then, look out.

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.

IMHO, there are more investors that would rather invest in stocks over $5, then under.

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?

Mel stated this BEFORE he diluted the stock by 40%. Back when there were 3.8BB shares outstanding. Now with 6.4BB? That changes a lot. His reasoning? Just that. Bringing in a new investor who took 40% of the company changes the dynamic significantly. Hell, they could say that Liberty insisted on it and blame them. Liberty may not even care! And if a 40% stake holder demands something from your company... then you HAVE to listen to them.

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.

The combined market caps of the companies never exceeded $15BB. The EV's (includinge debt and convertibles) at their peaks reached about $18BB. This was at the height of the bull market with rampant speculation as to the potential of these companies, before the impact from iPod and tremendous hype surrounding Stern and Karmazin going to Sirius. When they were announced in 2004... the stock shot up and XM followed. That sent the EV's up to around $18BB combined. Without that hype, without that speculation (because the street will know about their potential) and without the strong bull market??? Topping an EV of $18BB will be very difficult.

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?

Agreed. The timing will be key. You don't want to do it and kill any momentum the stock has -- but you also don't want to wait to long and allow others to drive it back down because of a perceived potential that the company is overvalued. For this, I have no answer. I'll leave it up to the experts. But if NASDAQ permanently suspends the rule -- then that will leave the 12/31 deadline date... Sirius will have some tough decisions.



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[homer985]

Are you considering possible new synergies with DirectTV and the Iphone Apps etc. when you evaluate where you see the stock price going and speculation of the stock price.

No. As you might now, it is difficult to make such assumptions in a DCF calculation. You can estimate it, but IMHO, those synergies would have to be significant to the business model for it to have a material effect on future cashlows and thus, the EV of the company.

So to answer your question, I made no assumption of that.




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[SIRI4LIFE]

Does anyone else here beleive that in 5 years there will n o longer be FM radio?
If so then you would need to consider all of their revenue would then flow through siri.
It's only a matter of time before EVERY car in the u.s has a sat radio in it. And I beleive it is only a matter of time until XM is free with ads in every car!!!!!

[homer985]

There will ALWAYS be FM radio -- and AM radio for that matter. Maybe not in its current form -- but it will always be there.

If so then you would need to consider all of their revenue would then flow through siri.

Besides, close to $10BB of the annual $20BB in revenue that radio (had) been generating was coming from local advertisers. This amount would obviously NOT go to Sirius XM, if there were no FM radio.

[FoolNHisMoney]

Homer, I posted this question in the Intraday thread a couple of days ago and didn't get any responses. Not sure if you saw it, but I was wondering what your take on it is:

"This makes me wonder . . . and maybe this is a dumb question that was addressed before and I just missed it. But, is the Liberty deal for 40% of the company shares part of the 8BB authorized shares or in addition to the 8BB authorized shares? Given that they circumvented a shareholder vote to complete the deal, did they also in effect increase the authorized share count to 13.333BB (8BB/0.60)? "

I don't recall seeing any wording in the Liberty deal that says that their 40% shares is part of the currently authorized share count or in addition to it.