Merrill Issues Report on Liberty Investment Into Sirius XM
Highly 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
How about the XM satellites? How much are they worth? 2Billions, 3Billions? Would Mel consider selling 1, 2 or all of them? That would take care of the debt and them some?
The XM satellites (the 2 good ones) are worth about $450MM total, when accounting for their use so far.
However, they will have very little value for anyone unless they plan on using them for DARS use. They cannot be altered for other useage. Besides, even if they did do this — the XM subscribers would be left with no way to receive the Sirius broadcast… creating 10+ million subscribers with bricks for radios.
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Thanks Homer for the update.
offer xm subs free siruis for a year w/activation of new radio. Solved, plus new subs for siri.
in2deep said:
>>>”offer xm subs free siruis for a year w/activation of new radio. Solved, plus new subs for siri.”
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Are you sure you’d want to do that?
$12.99 x 12 months = $155.88
$155.88 x 10MM subs = $1.56BB
That’s $1.5BB being removed directly from the top line on the earnings statement.
This company is projected to earn over $2.6BB in revenue in 2009. Are you sure you’d want to cut revenue in half like that? Seems awfully expensive. Plus, Sirius would have to borrow more money like crazy to make up for the lost cashflow.
You see, whether giving XM subs free radios — or offering them free service, the funding to do this MUST come from somewhere and someone.
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Tyler – No Price Target from Jessica??? No Buy Sell or Hold rating?
Most of the debt issues out there would not have been a problem without the help of the “analysts” and the media. They’ve been determined to run this stock into the ground since the merger was announced.
First we hear that Sirius won’t be able to get around the change of ownership provisions in the XM bonds.
Then when that’s done we hear Sirius won’t be able to make the Feb debt payment.
After that now we hear maybe they won’t be able to make the may or december payments.
Let’s not forget how everybody said the FCC would not approve the merger and even if they did the DOJ won’t.
Had we not received the beating from the press and analysts it is likely that much of the debt would have been converted to stock on far more favorable terms.
Great points. Will these guys ever stop?
Tyler… you said the following regarding Cohen’s research note:
“She notes that some questions remain regarding refinancing of the other $100mn of May XMSR bank maturities and $228mn of December XMSR converts.”
I suppose I read the filing completely different than she did — but the filing specifically said that XM was to extend the expiration of all of their bank loans first… and THEN Liberty would have the option to buy $100MM worth of those loans and XM would receive the $150MM term loan.
The extension of the maturity of these bank loans is a covenant to XM being granted their portion of the Liberty loans. Once XM has extended the maturity date “to a date and on terms reasonably satisfactory to Liberty”… then they will get their $150MM and Liberty will purchase $100MM of the loans themselves.
So if they maturities of all the May loans are extended, then there is no other May debt that needs to be refinanced. Furthermore, XM still has the $150MM left over to be used toward the repurchase of the $228MM Dec09 bonds.
I thought everyone knew all this, but apparently there is some confusion out there… this is how I read it. And it seems very clear to me. The only question is the Dec09 debt — and if XM is going to use the $150MM towards the $228MM maturing… then that just means that XM needs an additional $78MM, which I believe they should be able to cover, IMHO.
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Yeah, I was working on much the same theory as you. The 100MM purchase would be used to entice the banks to agree to the extension.
Terrymr… entice could be one theory…
I think another is so that Liberty has their hands on some of that very senior debt — that would push them to the front of the line in bankruptcy. They would also have $150MM of other senior XM loans; and $280MM in Sirius senior loans.
And a third possibility is that we know that JPM and UBS owns most of these loans — but who owns the rest? Maybe whoever does own it wants out? So Liberty, XM and the holders of them come to an agreement — XM announces this deal; then the holder agrees to extend the maturities; then Liberty agrees to buy that particular $100MM.
There’s truth somewhere in those 3 theories.
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I think the most likely is that somebody with $100mm of these loans has indicated they want out of it and remainder is happy to extend. That or extension is contingent on partial payment.
That is exactly how I read it.
I also thought there was mention elsewhere (not in the filing) that liberty “could/might” buy-out the Dec conv balance and refi that.
I think this is accurate. SIRI will then have 24 months of breathing room. If they can add 2 million subs ( I would like to think 4 million) and announce a price increase at the end of 2010…you have acompany that can survive or be sold to Malone or others. If this was not the case Mel would have gone bankrupt.
Tyler Said:
“It is my opinion that the share count will fall between 6 billion and 6.5 billion shares upon completion of this second phase.”
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I’m really not picking on you here… a couple thoughts about this… I agree, that the full share count will end up in the 6.3~6.5BB range. However, like GM’s perferred shares which they have held for coming up on 9 years, I do not expect Liberty to convert those to common shares any time soon. That is because they are senior to the common – in the event of bankruptcy, those shares would get rights before common (though they’d probably get canceled too) but there is more security in them.
I wouldn’t expect him to convert them until he was ready to start selling them… which I wouldn’t expect at these levels.
I do believe that a reverse split is now necessary. While I’m not a fan of them — they’re looking at a 6.3BB fully-diluted sharecount. IMHO, they should do a 1 for 25 split now, which would reduce the current sharecount to about 151MM and the fully-diluted count to 252MM. Much more manageable and would move the pps up to $4, at least initially.
As for the threat of shorts bringing it back down? To that I say, it’s too late. The Cap is already barely just $600MM. Priced for bankrutpcy still. If Sirius really believes that they have thwarted bankruptcy for the next year or two — then now’s the time split, while the Cap is seen as underpriced. Because if they have, then pps is going to go up no matter what those trying to short it back down try.
IMHO
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Yeah do the split immediately!!! Then by the time December comes around we will be back under a dollar again.
Yeah, if you think the company without the prospect of bankruptcy on its back is worth LESS THAN a company that is close to bankruptcy… then you’ll be correct.
The company is worth about $500MM right now. In Dec09 when it is passed those issues that could bankrupt it — which it probably will be — you think the company will be worth less than $500MM?
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Honestly Homer, I don’t know what to think right now. LOL
Your perspectives have good merit, but I feel the timing of a R/S will be critical to its survival.
Mel did say the R/S is for listing purposes only, but it looks like we will have no choice, to much float.
I just think it would not hurt to wait, and see if the markets can turn around. Get some wind at our backs, if its possible!! 🙂
If we fired this bullet now, the shorts will just eat us alive, again, and I would probably have to join them to recover some loses.
Siri should be EBITDA positive in the 4th quarter. There is a question about severence not sure what that number is, but think they should end the quarter with 350 million in cash. Add to that 100 million additional Malone money and 50-75 million in new deals before the price increase goes into effect. I think they also have access to $250 million in MLB money. I think there was some additional bank lines that only become available in equity is above 1 billion. I think they should be in reasonable shape to get thru the short term debt situation and buy 2 years time. The problem is if this is true why doesn’t Mel make that announcement?
Before we get too far ahead of ourselves . . we are still waiting for the other shoe to drop. The 2/23 earnings release and any near term guidance could lend perspective as to how the street will interpret share price going forward, even in the face of a R/S.
I am particularly interested in seeing how the COH situation was at the end of the quarter . . if for no other reason than to evaluate how wrong or right our varied assessments were over the past few weeks.
I agree with you – until the earnings release, sirius really hasn’t changed their situation. All debt still exists, at a higher interest rate. Until we show some ability to retire it, we’re just buying time……
SRK/Mike,
Your both right, just wait for the numbers so we can get some solid info.
I must be having a bad day!!! Just sick of all the negativity flowing through the markets, and relentless bashing by the media. Not happy about the 15% for the loans, but its better than the alternative.
It is true the economy is down but there is PANIC everywhere in this market. The talking heads are adding fuel to all of this panic. Just heard some old guy on CNBC say “In the 70’s there was double digit unemployment, inflation, gas shortages, the Watergate scandal, and a president that was resigning.” His point being it was worse then than it is today. My parent’s mortgage was 19% during the ’80’s and they survived. Some banks want to give TARP money back ASAP and that is GOOD news!! The money was forced onto some banks who didn’t even need it! SIRI and stem cell companies might be the “Micro Soft” of the ’80’s Folks!! Think long term. NOW IS THE TIME TO BUY!! Not JUST SIRI but other stocks as well. To people who are in cash right now it will be like shooting fish in a barrel!! Sorry to be so over-zealous but I am trying to stay positive after having the crap kicked out of me the past 2 years. Mostly in SIRI.
Disclosure: I averaged down in SIRI a little bit. Found some money in the couch!!!
One question: Where is the $380 million that was on the books after 3Q? What happened to that money?
Probably nothing. Most of it is probably still there.
Mel took it for a “deal closing” bonus
SXM . . . there was $400mm in the coffers at the end of Q2 and $360mm at the end of Q3. . . so $40mm was burned from Q2 to Q3 but Q4 was projected to be additive.
this is the question that has confounded the best of Sirius Buzz. why was COH not sufficent to meet Q109 needs . . which has been disected here over and over again.
I tend to believe, as others here have detailed, that the COH was segregated between Siri and XM and that the funds could not be comingled for purposes of taking-out the Feb debt . . what else could explain it?
So, like you . . I am most curious to see an accounting of Q4 COH when the earnings report is released on Monday.
If the guidance given on 11/10/08 was realized, then something on the order of $400mm should be laying around the office somewhere, hopefully under Mel’s desk . . . we’ll see on Monday.
My prediction is that it is ALL there and then some . . it just couldn’t be tapped due to bifurcation of funds and or a Siri loan covenant that we can’t seem to account for in the available loan docs.
I think you are correct. If not, why not go BK and restructure? To many disappointmets to be optimistic but we will see….
I have assumed all along that they just didn’t want to be “cash poor.” I personally have money in the bank and a giant mortgage… I could pay that down but, then I would have no cash. Financially, that is a bad position to be in.
some further parsing . . and a very interesting read:
http://dealbook.blogs.nytimes......st-chance/
The most detailed source of the Liberty investment.
I DON’T THINK MALONE WOULD HAVE MADE THE DEAL IF THE NUMBERS WEREN’T GOOD.
So with all this good news, what happened to the stock today? It went to shit. Does anyone have a prediction for the next 30 to 60 days? I just want out, I’m done.
You HAVE to play the rumors. Use the knowledge of the past to make correct choices in the future. Earnings should present a potential for an exit. However, the May debt payment is the next big trigger.
Averaging down is a great strategy for a stable market. Not the case right now.
The May debt will now be talked to death and of course the longer it takes to resolve the better chance the price stays low, and the better chance for a nice one day pop when it gets taken care of.
And it will, in my not humble opinion.
Use what we have learned from the past and right now to me, every time I get a little back, it’s a positive.
Maybe all the manipulation down was to get big shorts out at a decent price and now we can hopefully rise back up above .20. I still think .15 is a good buy here. Assuming 6.5 billion shares, this is a 1 billion market cap. I guess .30 would be 2 billion – not completely out of the realm of possibilities, but the market depression and pyschology needs to improve. Fuckin Obama with his world coming to an end predictions is not the remedy we need right now. I don’t think he is too bright, people need a little encouragement that things will get better, even if it might be a ways off.
He’s going to get his programs passed with as much gloom doom and kaboom as possible. The after the media spins this thing as the greatest financial catastrophe ever, it will all turn around and he will be the greatest since FDR. You can count on it.
A different view regarding the COH.
Siri is susposed to add around 66 million in Q4. That will put them just over 400mn at year end.
I am only guessing, but it would make sense to keep coh when trying to negotiate with potential suiters. Siri could have easily said that they could retire the first debt with cash on hand and have plenty left over. At the very least, it buys them another quarter.
400 million in cash is a lot for a company who has done the paperwork for bk.
It does seem that the synergies are growing and will have big impact. I hate the idea of further dilution, but now we know it will happen, just a matter of when…Unless of course, the new relationship can bring another dimention to the business.
I am sure that there are some key marketing advantages right around the corner.
This stock is a like a crazy drug, when I get out I want back in and all it does is hurt you in the end. In regards to Obama, he is being realistic and states that even though things are going to get worse, he also states that things will be better than they ever were and for as much as he has done in such a short period of time is remarkable and even with any mistakes he makes, he has the ability to learn from those mistakes and make the correct adjustments.
This is the TIME to BUY MORE…keep averaging down seems wiser than getting out and losing with no chance to gain $$$.
Gotta say play the rumors. Out at .22 Tuesday, back in after the price settles somewhere. That’s winning.
Have you actually sat back and really thought about the knowledge the authors and posters bring to the table about this stock? I have. And finally after the merger beating, I have taken everything I have learned from everyone, added it to the markets discretion and used it to work to MY advantage.
If you have to keep a core holding to satisfy the old adage that what goes down will go up. Do so. But I appeal to the wisdom of those here. Take your expertise and utilize it for your personal gain.
Take friggenreagan. Great call buying at low numbers. But stuck himself to the it has to hit this break even price before he sells. Had he segregated his investments into various timelines, he would have been able to completely nail it at the top yesterday and buy back in later. He had the right idea, but lost the strategy.
Learn from our mistakes. Until the markets reward long term investors, use your knowledge for short term gains. SRK, mentioned his take on the coming quarter announcement. I value his take on things and plan to play that for Monday. So I am looking to get in again where it makes sense.
GIS. I’m hearing some possibilities regarding home owners being upside down. I encourage you to get with an in the know finance person, who is working these new plans, and use them for your own benefit. I know a person at work who is working on the same, and I say if there is a program to benefit from. Get on it.
Downside has been, you have to default three months in a row till they talk to you. But you did the right thing. The market crushed everyone. And please see if you can get assistance. You deserve it.
Socal..you running fool,
couldn’t have said it better myself…. I use 1/4 of my shares to trade on news. Everyone I listen to keeps telling me how % doesn’t matter and I can tell you that their wrong… When this stock popped on Tuesday, I had a sell at .25, which after watching level ll, I sold at .2245. Within 20 minutes, when it went to .1511 I managed to buy that same dollar value sold back and gained 6K shares. Now I had been doing this and when the company was about to go BK, it would have been all for not. Now that it is not going to BK, I don’t put new money in (averaging down), I sell lots on spikes and immediately buy back on the take down. I can only do this on anticipated news and a maybe four times in a week without a problem with my account. The trick is selling lots not your whole position in order to avoid settlement issues and day trading problems. Just though I’d share a strategy that has more than doubled my shares without any new money…. good luck
COS. That IS exactly what I’m talking about. Nice trading COS. I’m in your camp and plan to stay there. Thanks.
Just tweeting the night away. Tweet Tweet…….
This Co. has made some mistakes, the climate has turned ugly, Karmazin has at times looked………..well scary as well, but THIS WEEK’S DEAL is probably one of the greatest saves from the brink of bankruptcy, to have happened WITHOUT THE SUPPORT OF TAX-PAYER DOLLARS, and a little respect and good will from those who are most in power in the financial media groups, would’ve went a long way to restore confidence, including mine, in all of THEM !!!
I really don’t get this at all. You guys are here all talking about all these details when I have never once see an analyst report without a buy sell or hold rating and a price target. I have no idea why this isn’t the issue here. Merrill must have put out its target and rating on the stock in this report and its missing from Tyler’s article and nobody here wants to know???
Wow!
I mean Jessica Reif Cohen is the analyst in 1998 that called Mel’s CBS Corp to triple from $18 a share in one years time and nailed the triple almost to the exact day. She is far and away the best media analyst in the last 2 decades. And nobody is interested in her price target?
I guess we all know better than her. Very very strange.
Muscle….
The report was on Liberty, not Sirius XM. There was no price target for Sirius XM
OK Thanks. Is Jessica still covering Sirius?