Reverse Split On Annual Meeting Agenda
Sirius XM has announced that they will be holding their annual meeting on May 27, 2010. While there is a lot of detail to consider at the meeting, perhaps the most important item on the agenda is the vote that will be taken regarding a potential reverse stock split.
A reverse split has been an issue ever since the company fell below the $1.00 price threshold required to remain listed on NASDAQ.
Sirius XM has bought an extension from NASDAQ which buys them time to avoid a potential reverse split. At this point mid September is the next point by which the company needs to regain compliance.
In an interesting development, Sirus XM has modified the parameters of the reverse stock split. The new range is from as low as a 1 for 2 to as high as a 1 for 25 reverse stock split.
Logically speaking the lower levels of this would bring the stock price into compliance, but would not get it to a point high enough to remove the risk of falling below again and once again losing compliance. Should the split be needed, I would look for the post-split price per share to be on par with other media companies, and be between $5 and $10 per share.
Understandably, reverse stock splits are not popular with investors. The fact of the matter is that trading below $1.00 is not popular either, and investors would like some confidence that the company is on the right path. Regardless of what investors feel, the facts are that all proposed measures of the meeting, inclusive of the reverse stock split authorization, will pass. Liberty Media holds preferred shares that account for 40% of the company, and these shares carry voting power. What investors need to understand is that the uncertainty will remain with this stock until they regain compliance either by getting above the $1.00 threshold for 10 consecutive days, or through a mechanism such as a reverse stock split. Given past trading patterns, investors should be ready for a long summer regarding Sirius XM Radio.
Position – Long Sirius XM Radio
“Given past trading patterns, investors should be ready for a long summer regarding Sirius XM Radio.”
100% disagree Spencer. With the car market recovering I expect Sirius will make it over $1 pretty easily this Spring/Summer and this whole issue of a RS to end.
From the proxy:
“Because the number of issued and outstanding shares of common stock would decrease as result of the reverse stock split, the number of authorized but unissued shares of common stock would increase on a relative basis. If we issue additional shares of common stock, the ownership interest of our current stockholders would be diluted, possibly substantially.”
David Frear on R/S:
Meanwhile, on what he calls the “share count flap,” he says that many investors do not like the company’s unusually high 6.5 billion fully diluted share count. A reverse-split could cure this, but Crockett writes that “Frear argues that the low price could appeal to the core retail investors that are Sirius’ key holders.” The analyst says Frear thinks any benefit from appeasing institutional investors over the company’s penny stock status would risk losing core retail holders.
A reverse split is ridiculous for Sirius. The compliance rules need to be expanded as Mel and others have suggested so that more than the stock price is part of the decision. A reverse split for Sirius is nothing more than smoke and mirrors. Bad for investors…..should not be considered or executed.