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Thread: Depressed Stock Price

  1. #1
    zcurzan is offline
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    Unhappy Depressed Stock Price

    Anyone think that Sirius is having some role, albeit indirectly through silence or whatever, in depressing their own stock price in an effort to:

    • Pick up XMSR using a depressed "currency"
    • Show weak financials to the FCC without speaking it.

  2. #2
    SteveSirius is offline
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    I was under the impression that the XM shares will each be converted into 4.6 shares of Sirius stock, without any money being exchanged. Am I wrong? If that is indeed the case, it would not matter what the stock prices are. Also, does anyone know at exactly what point the conversion takes place? Is it at the point when the merger is declared "effective", or some such word? In terms of stock price, my impression is that because of their merger approval still not a done deal, XM and Sirius both have to be silent in answering "analysts," and other "experts" about their stock price movements. They can't toot their own horns. Thus, both stocks have been tossed around because of the lack of responses and "guidance" companies normally offer in answer to their critics and naysayers. I would think having the stock prices as high as possible when the merger (I am optimistic) is announced would be best. In terms of weak financials being shown to the FCC, I would think it is the weak financials which speak for themselves - after all, the stock is trading in the aftermarket, without any money flow to Sirius or XM. If there is ever a need to float more stock to raise money, a higher stock price would necessitate less shares being added, thus creating less further dilution. Also, since some mutual funds, by their own regulations, cannot invest in stocks below a certain price. With a higher price, I would think post-merger, demand by these mutual funds might drive the stock price to higher points. Just my two cents. I'm sure this is all more complicated and variables more interwoven than any of us imagine.

  3. #3
    zcurzan is offline
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    Quote Originally Posted by SteveSirius View Post
    I was under the impression that the XM shares will each be converted into 4.6 shares of Sirius stock, without any money being exchanged. Am I wrong?
    No you are absolutely right.

    But that is precisely my point, if XMSR is going to get 4.6 x times price of a share of SIRI. SIRI has some defined value, which it could be trading higher, lower, or dead on at any given time. Let's say the Sirius stock is really worth 4 bucks, and we purchase XMSR at a time when we are trading at 2 bucks, we are essentially paying XMSR in "cheap cash".

    Or wait, maybe this doesn't matter. Am I not taking into account the premium payed for synergies. Someone help me unravel my thought process here (if you can) please.

    I guess the XMSR holders would receive the appreciated value as the stock climbed again...

  4. #4
    SteveSirius is offline
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    Hi zcurzan! Thanks for all your intelligent posts. I read them daily and learn a lot from them. With regard to the "price" paid by Sirius for XM, if I am correct and the only price paid by Sirius is 4.6 shares of Sirius stock, then Sirius merely issues enough stock to cover x amount of XM shares times 4.6. Of course, another "price" Sirius pays is taking on the debt of XM, but that debt will be the same regardless of the stock price of either company. I think when a stock price is important to a company is (1) when either they are buying a company and paying the equivalent of a dollar amount in stock (so they have to issue more shares if the share price is low), or (2) if they want to sell more stock to the public. In either case, they dilute their stock less if the stock price is higher, thus enabling them to issue less shares of stock to equal the same amount of money. And, although I don't know for sure, I would imagine that future financing could be gotten on better interest terms if the stock price were trending higher, perhaps indicating more stability of the company. After all, when a company issues stock to the public (or in a private stock placement), that is when they get their money. After that, it's people like you and me selling to each other, without our trading resulting in any money going to the company. Having said all this, regarding the merger, one would think that having the stock price lower might make it seem to government regulators that the companies are more unstable as stand-alone companies, and that they need to merge to survive. One would think so, but almost 500 days of non-decision could almost make one give up on logic! Keep up your wonderful posts. I look forward to them!

  5. #5
    zcurzan is offline
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    Hey Steve. It's good to have you with us. I'm really happy to see different ideas flying back and forth on this board, that's what its here for.

    I'm not even sure what I'm trying to get at here. I remember discussing the implications of all stock transactions in one of my Master's classes, but I didn't sleep last night and I can't seem to wrap my brain around it. haha Oh well, maybe it will come back to me later.

  6. #6
    zcurzan is offline
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    You are right, in this case none of this matters because it is a floating ratio between the two stocks.

    What I was thinking about was the AOL Time Warner merger in which AOL bought out TWX using a stock offering, when their stock was grossly overvalued by the market. In this case they were purchasing the assets (and liabilities) of their target and using a significantly smaller amount of shares. Therefore, when the price adjusted, the TWX got screwed because the shares they got were essentially useless. Not to mention that whole merger was a disaster, but thats neither here nor there.

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