SiriusBuzz

Perhaps the folks at SIRIUS XM Radio may not have wanted this released, but I was able to dig up a video of SIRIUS XM Radio CEO Mel Karmazin speaking about the merger just after it was announced, and what will be happening with the company going forward.

The video, which cuts off just after Mel speaks of the interoperable device, does not get into specifics along the lines that were given in the “Town Hall Meeting”, but does give general outlines of some of the things that will be announced after Labor Day. It would appear that perhaps this video was geared towards employees who could not participate in the live “Town Hall Meeting” meeting.

If nothing else, it is interesting listening for passionate fans of satellite radio.

There is no telling how long this link will be active, so listen while you can.

[KARMAZIN VIDEO CAST]

You love baseball, but your car came with Sirius. You love football, but have always been an XM subscriber. These are problems of the past as Sirius and XM have now merged to form Sirius XM Radio. When people think of merger synergies, they tend to think of cost savings that are derived from items such as the elimination of duplicate functions, savings on advertising, or savings in customer service and billing. Some synergies have potential to add revenue, and for investors, the fact that these types of added revenues seem to be getting overlooked could be a positive on the equity.

We covered one obvious revenue stream in Howard Stern, who as the King of All Media, suddenly finds himself with an expanded audience by the addition of XM subscribers that will soon be able to get Sterns program. The next obvious crossover programming would be sports.

Major League Baseball is right now in the midst of a pennant race, and the National Football League is just now ramping up. The timing of the merger from a sports perspective could not be better. XM has every MLB game, Sirius has every NFL game… SIRIUS XM Radio will be able to offer crossover programming in the form of “Best Of”. Best Of will allow existing subscribers to get some of the best from what used to be the other service. The fee for accessing the crossover programming… only $4.04 per month.

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A lot of noise is being made these days by people regarding certain convertible debt that SIRIUS XM has coming due in 2009.  I have no problem admitting that I for one, am one of those unsophisticated investors we’ve heard about lately. The truth is this whole convertible arbitrage thing hit me like a sucker punch to the side of the head, and I’m still trying to find out what the heck just happened!

Seems like a lot of people are becoming more sophisticated these days as they try to learn all they can about convertible arbitrage. I was reading over Sirius’ 10Q filed today. After hearing Mel on Cramer referring to converts coming due in 2009, I decided to look into it a bit deeper. I have seen message board posters claiming billions had to be repaid in 2009.

I did find 2 converts coming due in 2009. The first one is a total of $300,000.00 due in February 2009. On the grand scale this would seem like minutia. Also listed was $1.7 million in “aggregate principal amount of 8-3/4% Convertible Subordinated Notes due 2009″. These are not due until September. That’s a total of 2 million dollars. Not for nothing, but refinancing those notes should not be a problem. In fact they should just be paid off.

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As a good investor, one has to look at the positives as well as the negatives of any given company that they are interested in investing in. As most of you probably know, I am bullish on SIRI and I do think the long term future is bright and that the merger will only speed up the road to success for these two companies. I am, however, able to see a few issues that will have to be dealt with by the combined company debt, institutional holdings, CapEx, naked short selling, retail sales.

1) Debt: The combined company now has a total of 3.4 billion dollars in debt. This does not concern me nearly as much as the fact that 1.1 billion of that is due next year. Mel has come out and said that they expect $400 Million in expected synergies, and $300 million in free cash flow, but that is before capital expenditures. Even so, $300 million does not come close to paying off that $1.1 billion. That leaves at least another $800 million dollars that will need to be refinanced. What are the credit markets going to be like next year? Will the $300 million in FCF prove the value of SIRIUS XM Radio and allow them to get acceptable terms? We will have to wait and see.

2) Institutional Holdings: Many people cannot figure out for the life of them why the stock keeps dropping. All of these synergies and the PPS is still going down? One item that I have been cautioning people about for a VERY long time (but no one seems to acknowledge) is the fact that institutions are limited on the number of shares that they can purchase OR hold. I am not simply talking about not being able to buy a stock under $5 or $3 or what ever number.

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Todays Mad Money appearance by Mel Karmazin may be the single most important interview for every Sirius Xm investor, ever. As the bottom was again tested at 1.32 on Friday, this was a must win for Mel Karmazin.  I must say that in my opinion, Mel delivered and delivered in a big way. Mel began by assaulting Jim Cramer on behalf of all SIRIUS XM investors, by throwing an object of some sort at him! Boo-Yah, Skee-Daddy!

Mel was able to set Jim straight on many things, such as next years converts which Jim tried to claim were due this year. Mel also took a shot at Goldman Sachs, citing potential wrongdoing on the part of Wienkes, regarding his work with hedge funds.

He explained in layman’s terms that promotions regarding the best of packages, namely Howard Stern on XM would be available this fall, and investors should look for a large marketing push to this effect. Regrettably, Mel outlined that some terminations have already taken place and that more would be forthcoming.

As for greater visibility, he stressed that SIRIUS XM would be providing an investors conference call following Labor Day, to outline the future plans and update guidance. Mel seems laser focused on profitability.

One of my favorite parts was getting Jim to concede that he liked no other company in the sector better. I was thinking about this yesterday while watching the Olympic men’s relay team steal the gold medal away from France. What if you could only buy and sell stocks every four years? Sirius, in my opinion would certainly have to be one of them.

The stock reacted nicely and is well off its technical bottom. Is this the beginning of the long awaited reversal? Time will tell, but for the moment it’s looking like it very well may be!

[Watch The Interview]

Position - Long SIRI

Within three months of the merger, SIRIUS XM Radio has committed to getting a “BEST OF” option available to consumers. Unlike true A-La-Carte programming, “BEST OF” will work on all existing services with legacy receivers on both the Sirius as well as the XM system. The “BEST OF” programming is simply the broadcasting of content that used to be available on only one network onto the other network using existing technology and systems.

Howard Stern will likely be the biggest “BEST OF” draw. Stern, used to only be available on Sirius, and for those that bought a car that only installed XM, were either forced to buy a Sirius retail device and get a full subscription to Sirius on top of their XM subscription, or to simply do without him.

These consumers now have an inexpensive and viable option that allows them to access Howard’s channels without the cost of new equipment, without cluttering up the dashboard, and without paying a full $12.95 per month for the second service. For an additional $4.04 per month, XM subscribers will not only get Howard Stern, but several other “BEST OF” channels from the Sirius line-up.

The “BEST OF” concept goes both ways. Sirius subscribers will have access to XM’s best for the same $4.04 per month. Many consumers feel that the sports programming will cross over as part of this package. I do not believe this to be the case, at least not on an “every game” basis. Negotiations with the major sports outlets likely still need to be conducted to deal with the new concept of a merger. Look for “BEST OF” to include exclusive content that is controlled by each respective entity.

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One of the compelling things about satellite radio in the early years was the passion that satellite radio subscribers and investors had for one company or the other. Epic debates of playlists, commercials vs. no commercials, sports vs. music, having the NFL vs. having MLB, and that was just the content debate. Anything and everything SDARS was debated. Which company was performing better, which had more potential, and on and on.

With the merger, all of those people now find themselves on the same team, and wondering exactly what the merged company will do on the content front as well as the business front. Many have accepted the merger, and are moving forward with cautious optimism.

There is still a satellite war happening though in Canada. Sirius Canada and XM Canada have not merged. They are still separate companies with XM Canada being publicly held, and Sirius Canada being a private company. The debate and barbs that used to be commonplace in the states still exist north of the border. A simple look at the press releases from the Canadian counterparts on the day of the merger tells everyone that Sirius Canada and XM Canada are still sparring.

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Tune in at 1:30p ET Monday, As Cramer goes head to head with Mel, live during market hours.

I don’t want to build too much hype. I just know I don’t want to hear anything about 300 million in positive EBIDA before capex (capital expenditures).

UPDATE:

Like him or not, it is prudent to know what Cramer is saying about an equity if you are invested in it. will Cramer now become a supporter of the SIRIUS XM Radio? Tune in Monday to find out.

[ CNBC ]

With the Q2 2008 conference call of SIRIUS XM radio complete, analysts are beginning to weigh in on the prospects of the merged company. While as expected there are both bearish and bullish outlooks, with a smattering of opinion that goes right down the middle. The merger is new, and analysts are applying differing valuations, and even models as they look at the companies.

JP MORGAN

Barton Crockett of JP Morgan has given a slight upgrade to SIRIUS XM Radio. He moved his outlook from “Neutral” to “Modestly Positive” after seeing the financials for the stand alone quarter, and listening to the Tuesday conference call.

STIFEL

Stifel analyst Kit Spring had previously expressed that the pre-release of numbers by Sirius were mostly in line with their estimates. After the full release, Spring still sees a “Buy” rating on SIRIUS XM Radio with a price target of $3.00. Spring notes, “Our core reason for sticking with buys on SIRI despite the somewhat disastrous refinancing of XMSR’s debt, is that we think the stable self-pay churn (1.6%) in 2Q and OEM conversion (50% combined) statistics point to the consumer still liking the product. Especially in light of a weak consumer, increased penetration of lower-end new cars and cars with iPod/MP3 jacks. We continue to see $4.9B of present value of merger synergies with expected cost cuts on virtually every lien item.”

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Mel Karmazin recently described himself as an operator. The man has brought many ventures to profitability and beyond, and he is the CEO of the newly merged SIRIUS XM Radio. One thing about Mel Karmazin is that he is steadfast in obtaining goals once he publicly states what they are. He has proven time and time again that he will accomplish the things he sets out to do. He is a business man that is tough to be across the table from, but a joy when he is on your side.

With the merger between Sirius and XM, a new company has been born. Karmazin takes the helm and has set a course for certain goals. $400 million in synergies, strong cash flow, and ultimately profitability. Given his track record, it is pretty much a foregone conclusion that he will get there. Those that want to know how this will be accomplished may find disappointment in the level of detail given thus far, but a bit of waiting has potential to pay dividends.

As a stand alone, Sirius Q2 was good. Metrics seemed to scale across the board, and perhaps one of the more impressive lines was how well costs were controlled despite a much higher royalty rate. While the merger will still deliver costs in the short term, the potential going forward is substantial. Investors and analysts may not be given the path that gets the company to profits, but Mel has pointed everyone in the right direction.

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