Sirius XM Radio is trading below the $1.00 price required by NASDAQ to maintain listing status. The company is still on NASDAQ thanks to a suspension of the minimum price requirement by NASDAQ on two occasions. The second suspension of of the NASDAQ requirements expires in August of this year. So is there a danger that Sirius XM will be delisted in August? NO, NOT AT ALL.
If NASDAQ does not extend the grace period a third time, notices will go out in mid August. A company receiving notice will get an automatic six month extension in which they can try to come into compliance. One requirement for the six month extension is that the company have measures in place to come into compliance. Sirius XM has a reverse split already approved by shareholders, and thus, has the tool in place to gain compliance should they need it.
The six month extension would take Sirius XM into the Spring of 2010, but the company can also appeal the delisting and gain even more time to try to come into compliance. In effect, Sirius XM could delay a reverse split for nearly a year from today, and thus immediate worries of a reverse split are virtually unfounded at this point.
One reason investors tend to worry about reverse splits is the fact that companies who use them are typically companies that are in financial troubles. A classic example of why investors worry can be found in the recent reverse split conducted by insurance and banking giant AIG. The company enacted a reverse split, and promptly lost half of their value again after the reverse split occurred. AIG is still far from being out of trouble, so it is no surprise that the price per share is still taking a beating.
For Sirius XM, a reverse split at this point would be very dangerous for investors, which is exactly why investors in this equity can breathe a sigh of relief in knowing that a forced reverse split to maintain NASDAQ compliance is still a long way off. The company is showing signs of offering better financials, but there is still a lot of question on the street surrounding the company, and shades of doubt are a perfect breeding ground for taking down the stock price of an equity.
If Sirius XM is able to produce better financials over the course of the next year, they may be able to climb above the $1.00 per share mark and avoid a reverse split altogether. That is the best case situation. If they do not get over $1.00, they need to be able to produce good numbers and remove doubt. This is where the company can get an assist from Father Time. One year is a long time, and during that period, we may actually see a recovery in the auto channel. Combine good financial performance with an improved OEM channel, and merger synergies realized, and it is possible that this is one reverse split that could break the negative trend we often see when companies need to make that such a move.
Simply stated, Sirius XM needs to be on their strongest possible footing if and when the time comes that they conduct a reverse split, but to worry about it now is premature.
Position - Long Sirius XM, No Position AIG