merrill lynchHighly respected media analyst Jessica Reif Cohen of Merrill Lynch (now with Bank of America) issued a report yesterday on the investment made by Liberty Media into Sirius XM Radio. The report was quick and to the point, but does offer additional confirmation on some details, including the issue of when Liberty will get their shares of Sirius XM stock that equate to a 40% stake in the company.

In a listing of key points, Cohen outlines the following:

1) total investment is $530mn

This figure was reported by numerous sources, including Sirius XM Radio.

2) Cash will be attributable to Liberty’s LCAPA tracker

This information is more geared to investors in Liberty media

3) LMDIA is not involved and the investment does not impact the hard spin of LEI

Again, information more geared to investors in Liberty Media

4) the first $280mn will be a secured 2012 loan at 15% under SIRI’s existing secured facility carve-out

This was widely reported, and is the cash used to pay off the February note.

5) the second $150mn is at the XMSR silo, with an incremental $100mn to purchase some of the $350mn May bank maturities

This money deals with the XM debt.

6) with the completion of the second phase Liberty receives 12.5mn preferred shares, convertible to 40% of SIRI common, and board seats.

This issue seems to be where most people have some confusion. This is in fact where investors will see some dilution to the common stock. It is my opinion that the share count will fall between 6 billion and 6.5 billion shares upon completion of this second phase.

Cohen notes that the Liberty deal is a clear positive for Sirius XM Radio, but that there will still be some 2009 debt that this deal does not address. She notes that some questions remain regarding refinancing of the other $100mn of May XMSR bank maturities and $228mn of December XMSR converts.

While the remaining figures are substantial, they are not insurmountable, especially if the company can continue to bring about merger synergies, cut costs, and manage cash flow. With the financing albatross off their backs, the company should campaign about getting subscribers to prepay prior to the price increase. The value of the 2009 debt could well be handled with cash raised from a good marketing campaign to get subscribers to lock in rates. The deferred revenue, a liability on the books, will carry an impact on the numbers, but getting rid of debt could be a big boost.

Position: Long Sirius XM Radio