With Sirius XM still trading above $1.00, the threat of a reverse split begins to diminish. The company must trade above $1.00 for ten consecutive trading days to regain compliance with NASDAQ listing requirements. Three days are already in the books, and the fourth seems a near certainty with the trading day half over.
Speculation surrounding the potential reverse split has been wild over the past couple of months. From those dreading the possibility to those that want to get the pain over with like pulling off a band-aid, there has been no shortage of opinions on the matter. Right, wrong, or indifferent, most of those opinions are water under the bridge at this point and now everyone is focused on getting the six remaining trading days needed to regain compliance.
Let's assume for a moment that they do indeed remain over $1.00 and regain compliance. Personally, given the trading action, I believe this is a real possibility. Will that remove the potential for a reverse split? There is a scenario where a reverse split is still possible, but this scenario does not involve the company being forced into the action.
Sirius XM may stave off a forced reverse split, but could potentially still move to perform one anyway. This however would be done in an entirely different set of circumstances. The company would not have the "Reverse Split Gun" to their heads, but rather could do it as a business decision.
Frankly, at any price under $1.50, the company remains in potential danger of getting out of compliance again by a retracement, bad news, or near catastrophe in the economy. Technical traders will be nervous about gaps in the stock price that transpired on the way up. There would still be a level of uncertainty surrounding investment in Sirius XM.
What Sirius XM could do is proactively seek a reverse split to build a cushion well above the $1.00 threshold. As a business decision, this would make the price per share more on level with their peers, and even allow additional institutional investment if the reverse split price were to take the equity share price to above $5.00.
There is a distinct difference between being forced to conduct a reverse split, and doing it of your own accord. Yes, reverse splits have a bad connotation, but typically they are conducted out of survival, not as a business decision. If the company were to sell this potential with the benefits associated with it, it is possible that they could mitigate the negative aspects associated with reverse splits, and be on their way to a less rocky compliance road.
Why should the company consider this option?
- In my opinion, that price cushion could erase a lot of uneasiness on the part of investors.
- The company would be priced with their peers on a per share basis.
- The float number would not be so huge that it is incomprehensible
- Puts technical gaps out of reach on non-compliance levels.
- Could help promote more institutional investment.
- Removes the danger of Q1 numbers reporting from taking a hit on the stock if they are not "up to par" with expectations.
The company seems to be on a stable path. In my opinion they need to prove to the street that they can be a profitable concern quarter after quarter with sub numbers above 18 million with the current subscriber pricing structure. Until this happens, there will always be factions that are uneasy about this equity. By removing any threat of non-compliance, the company can effectively begin to mitigate the unease factor associated with this stock.
Is the company going to do a reverse split anyway? Only time will tell, as this is mere speculation on my part. Should they consider it under the right circumstances? Sure, a smart company considers everything. Should investors fear this potential? Not necessarily. Conducted under the right circumstances, and "marketed" the right way, there are potential benefits. Still, the term "Reverse Split" does make many people shudder under any circumstance. What is your opinion?
Position - Long Sirius XM Radio