Echostar Buys Sirius Debt: Takeover Thoughts or Just a Good Investment?
The news agencies are buzzing over a potential takeover bid by Echostar for Sirius XM. The Wall Street Journal initially reported that Echostar CEO Charles Ergan has been quietly buying up Sirius XM debt. Internet bloggers have jumped all over the story and have created mass confusion for investors in Sirius XM.
There is so much misreporting underway, that there no longer seems to be clarity as to exactly what it is Mr. Ergan is actually buying. The Wall Street Journal has made it abundantly clear the Mr. Egan has been buying the Feb. 17 convertible debt. As the stock began to rise on that news, other agencies began reporting that he was in fact buying Sirius XM bank debt instead, and have created some outlandish stories around the topic.
We have also learned that if in fact Mr. Ergan is making a play for Sirius XM, that all of the outstanding debt if it were bought and converted to equity would give Mr. Ergan only 18% of Sirius XM, which would require open market purchases to be made to give him a majority stake.
All of these “would be-could be” scenarios have a common thread. They all assume that Sirius XM is going to default on its February and/or May debt obligations, and therein lies the main problem with the focus of this weeks events. No one has stepped back and questioned that perspective. No one that is, except yours truly.
Here’s another perspective that does not involve conspiracy theories. To begin with, Echostar is not buying the debt. Mr. Ergan is. Having worked for a bond firm myself, my first thought was not that Mr. Ergan was making a play for Sirius, but was simply making a good investment. The convertible bonds were trading nearly 20% below par. If Mr. Ergan believes as I do that Sirius XM will in fact meet its debt obligations, buying these bonds is simply a sound investment decision.
A wise investor, who dare I say may be in a position to have this sort of knowledge in advance would be wise in making a near 20% profit in only a few short weeks when these purchases were made. Further proof of this may be found in the bonds themselves, which are trading at a premium of 105 and offer a very large negative yield. Typically, bonds that are about to be defaulted on do not trade at a premium, but rather a substantial discount as bondholders look to unload them as one would a used car.
Could you explain the whole converting the debt to equity but only getting 18% of Sirius…. You state this like something obvious, but I don’t understand this point, and I’m sure I’m not alone.
Brandon – I’m not sure what your point is ?
$175 million 2/15/09 debt divided by .12/share = 1.458 billion shares about 18% of the 8 billion shares authorized.
I thought Goldman Sachs had $135m of the $175 2/15/09 debt and wanted the shares. It sounded like Echostar had the $400 December debt. The May debt would be renewed at higher rate.
Who knows where the $40m 2/9/09 debt is. Converting the December debt at .12/share would be 41%. However I was hoping it would be a higher price per share before we got to December.
Shares authorized and actual shares issued are two completely different things. If Echo has the $175 and converts to shares at 12 cents it will have close to 1/3rd of Sirius.
Llllllllllllets get ready to rumbllllllle
I sure would like to see a boxing match between Charles & John . . . could we arrange a live Howard Stern show broadcast with a delayed replay on Howard TV? (ala Geraldo vs Frank Stallone)
Tyler could then do the replay on Thursday night on Sirius Buzz Radio . . . I smell a big ratings winner here . . .
Reuters clearly stated Feb 4 2008 that it was ECHOSTAR that was acummulating the debt. Go back and correct me if I am wrong.
MR ERGANS ECHOSTAR CORP!! Sorry about the year error. I am still in 2008 mode
http://uk.reuters.com/article/.....7920090206
FEB 5
sorry, can’t find that one . . . here’s a couple other takes . . . for what they’re worth:
http://uk.reuters.com/article/.....7920090206
http://www.thestreet.com/story.....en=GOOGLEN
So could we see others start to buy up the stock to counter echostar?
This would send the stock running up!
One aspect that is missing in the artice is that it has also been reported that Echo Star and Sirius have been in negotiations for several weeks over this debt issue, and still further, a report was issued that this is an asset play on the part of Charles Ergen, which would make sense to me. From what I have seen and read of Mr. Ergen, he is a very shrewd businessman, and I am not totally convinced that his play is about money. It is possible, as Echo Star has had some poor quarters recently and is buring through alot of cash.
How can a small investor purchase sirius bonds? is it possible
thanks
I think it is clear that Mel/Siri-xm and Ergen are working together. Mel is trying to buy time and he would rather pay one guy a premium rather than a bank or Morgan Stanley who I guess is a bank now. He will pay a premium for time. Clayton is on the board of Echostar and is a major investor in Siri-Xm. Mel wants to win…
Brandon — thanks for clearing all that up. I feel much more confident with my investment in C/S. It all makes sense now… *laughs* Nice try though…
It is counter-intuitive to wipe out the common shareholders. Reason being: SiriusXM programs there content based on what percentage of subscribers might sign up for that content. Well, just think of the amount of shareholders that equal an audience that is a percentage of total subscribers. Why would they want to wipe out that many subscribers who are a percentage equal to an audience they would get with their programmed content. I don’t know, it’s a zero-sum game to wipe out the common in my opinion. It’s just “common” sense. The only thing to worry about is a hostile takeover and forced BK.
1st point of contention: there is only ONE source for ALL of the news that is flying around, and that’s the WSJ, which has not been corroborated by ANY other MSM – they are just reprinting what the WSJ reported. And I used the term “reported” loosely as the article is littered with editorial comments.
2nd point: the article clearly states “Charlie Ergen’s Echostar Corp,” not Charlie Ergen himself. So if it is Charlie Ergen himself then the WSJ is grossly in error.
3rd: The Feb debt alone is 18% at current SP’s. The full ’09 convertible debt load would be much more at current levels . . . maybe even 51%?
I forgot to add that the WSJ followed up to report that ES has acquired $400 M debt, which is much more that the remaining Feb debt. So this is clearly more than a short term play on the Feb debt (although that may be a component of it as Brandon rightly points out the value in the bond prices).
Why doesn’t Mel just come on out and make a comment on what he knows is happening behind the scenes?
The ‘rally’ that occurred in the stock on Thursday could’ve really had legs underneath it had he said something positive, either Pro-SATS-SIRI, or refuting the ‘power’ of Charlie Ergen and his ‘dark-(Echo)-star’ to derail the newly minted XM-Siri from it’s mission to succeed.
The fact is, that as many times in the recent past now, the usually boisterous Mel Karmazin remains on the sidelines makes for very nervous if not foolhardy investors
Mel has mentioned he is talking with private investors on several conference calls. Bankruptcy is still possible but it will be June 1st before we know. My guess is Siri will pay Feb debt and have sufficient cash to make it till June. Mel could also be offering MLB, NFL, Oprah, Howard stock as oppossed to cash.
The last article from the WSJ stated that Ergan bought up “most of” the remaining 2.5% Feb09 bonds; and slightly more than half of the 10% Dec09 bonds — totally $400 million worth.
I assume that to mean that he bought $170 of the $175 million in Feb09 bonds; and $230 million of the Dec09 bonds.
His Feb09 purchase at an average bond price of 80, would have cost him $136 million. His Dec09 purchase at an average bond price of 40 would have cost him $92 million.
So he bought up $400 million of the 09 bonds for about $230 million.
But he still doesn’t own the May09 bank debt — and likely won’t be able to get his hands on it either.
——
What does this mean from the perspective of leverage and control over Sirius and negotiations ?
And how much changes if Sirius gets an extension or a new term loan for the May bank debt ?
As long as the $350 million in bank loans is outstanding, all of the bonds that Ergen is buying will be subordinate to the bank loans. If he sat down with all of the bond and bank debt holders, he would not get control of them… the banks would.
Now if XM extends the expiration of the bank loans and pays off the Feb09 bonds — then all that is outstanding is the Dec09 bonds. Ergen would be a position to control those negotiations, as he has more than 50%. But if he forces the company into bankrutpcy overall — again, the banks would takeover as there are $650 million in senior bank loans that take precedent… pushing Ergen’s $230 million down the ladder. Plus, bankruptcy court could lower his claim if they felt it necessary. There’s a lot of risk to him if he forces bankruptcy.
——
Ergan’s net worth is 8.1 billion. He can buy Sirius XM with his pocket change. If he wants this company he will buy it.
Let me put it in perspective. If you had $40 bucks in your pocket. You could buy Sirius XM for $2 bucks. Duhhhhhhhhh what is wrong with you people? I swear you folks are retards.
SiriusXMInvestor, What is your opinion with regard to Ergan’s recent actions? Why is he dicking around with bonds and debt that are subordinate to the bank? Is he looking for a short term profit or is his goal to buy the company?
We realy don’t know what Ergan is doing. Unless you believe the WSJ.
SiriusXMInvestor
Do you actually know just how liquid Mr Ergan’s assets are! Did’nt think so. For that matter, Mel could probably buy the company. For about 500M you could buy controlling interest in SiriusXM. But since you know it all, you probably knew that.
BTW your still an A-hole.
You seem to have an answer for every post. Thanks….D-bag.
No
Just the one’s where you pretend to be smarter than the rest of us!
You are correct, we do not even know to what extent Echo or Ergan have invested in Siri debt. No one believes the WSJ anymore. They are the financial equalivent of the globe or star.
Just took offense to the retard comment. Not necessary.IMHO
So SiriusXMInvestor instead of addressing his point you simply say that he has an answer for everything and call him a D-bag. Brilliant!
Siriusxminvestor why do I know your entire investment portfolio is about $2500. (If that)
The value of anyone’s investments should not be relative / proportional to the importance of their comments. I am always hopeful that SiriusXMinvestor will someday stop being such a Dick….. regardless of what his investment is in the stock. Like the rest of us he is invested in the day to day of the company…. Did I say while defending his right to post regardless of investment that he comes off as ….. a Dick.
SiriusXMinvestor,
Your trying to be a Dick…. right???
Cos
Be careful…I am not sure that you can say the d…word. Might bring out the censor-gods. In the future, I’m going to try and be more positive..he is trying to be a … though!
I am still trying to figure out what the “A” in A Hole stands for.
Roger/JS
Thats his MO. Posts here to piss people off. Usually has nothing positive to say. However, he is correct about Echo/Ergan investment in Siri and WSJ. I sure hate giving him credit!
Wall Street Journal – someone put teh full article up please !
Satellite mogul Charles Ergen made an unsolicited offer late last year to take control of Sirius XM Radio Inc., and was rebuffed, according to people familiar with the situation.
Mr. Ergen proposed for one of his satellite companies — EchoStar Corp. or Dish Network Corp. — to inject enough capital into Sirius for it to meet its debt obligations and avoid a bankruptcy filing, these people said. Despite the rejection, Mr. Ergen has recently reiterated his interest in taking control of Sirius.
Mr. Ergen isn’t seeking to force Sirius into bankruptcy proceedings in order to acquire its assets more cheaply, …
Considering this is the biggest happening on this stock since the selling of shit converts after the merger, this site blew coverage on the recent ergen news, proposal etc. Well it looks like the fat lady is singing boys. Put your seat belts on and hope mel can land this thing in the hudson! Otherwise we are done! Why cant he lend the $175 million? I have always believed in mel, but i feel we are not being told we’re all finished!
It is and always has been impossible to find a reliable source of information regarding the true negotiations that effect share price with this company.
You search far and wide and just like the merger, end up finding out from the friggen wall st. journal. May as well just subscribe to that and screw the rest.
How is it, in the electronic era that this guy makes this play two months ago at the minimum and not a word until February????? Beautiful. Mel has seven days. Then either he does his job. Which he’s had seven months to do since the merger. Note dryships had it’s loan extended today. Or he is what Hartleib says he is.
We will all know soon………………..
Socal . . . same crap Mel pulled with the Midnight Massacre (ooh-ooh, NAB shopping for a friendly judge; ooh-ooh, I was really under pressure to get that financing done)
and all his other BS, even though he had 18 months to prepare. lets remember some of Mel’s brilliant business acumen:
The debt offering was extremely successful. In fact, it was “oversubscribed” (duh!)
– and when the street was too smart for that BS –
I’d much rather have the merger done than having waited 18 months and have it not done (or some other BS jibberish).
– and when the street was too smart for that –
We are working to refinance the debt “sooner rather than later” (that was in September ’08)
– am I going to have to loan the company my own money? I certainly hope not –
It goes on and on . . . Mel will do what is best for Mel and Howard and Leon Black.
At this point, I hope Ergin sticks it up his a#% … the peanuts I have left out of a 6 figure position ain’t changing my life . . .
What goes around comes around . . . Mel Karmazin is either corrupt or incompetent. Take your pick.
Wanna argue marketing and innovation . . . please, lets not even go there.
This is not some unfortunate hand that Mel has been dealt . . Mel dealt the cards himself . . .
sorry Socal . . . that was not directed at you . . just unloading some pent-up frustration because of all the Mel apologists that are still out there.
i dont believe anything i read as so much misinformation has been spread–much by the press grasping for anything over the past several months–Plus look at the source of the article in the Wall Street Journel that came out this morning–Not even from the US–More short manipulation?
sure is nice having mgt keeping the owners updated
Hmmmmm Mel told us last week ?
Apparently satellite mogul Charlie Ergen’s run at Sirius XM (SIRI) has been in the works for quite some time. Indeed, “people familiar with the situation” tell The Wall Street Journal that he made an offer late last year to take control of struggling satellite radio outfit, but was rebuffed. His proposal: that one of his two satellite companies: EchoStar (SATS) or Dish Network (DISH) supply Sirius with enough capital to meet its debt obligations and avoid a bankruptcy filing. Clearly, then, Ergen isn’t looking to force Sirius into bankruptcy in order to claim its assets on the cheap, but rather because he sees it as a natural complement to his television operations.
Sirius CEO Mel Karmazin obviously doesn’t share that view, though he may soon come round.
With just a week or so left until its first round of debt obligations come due, Sirius is in a tight spot. As Karmazin told investors last week, the company needs to raise $175 million, and quickly. If it can’t it will end up either filing for bankruptcy or cutting a deal with Ergen. Given that Karmazin himself invested $2.7 million into Sirius stock last summer, Karmazin may well opt for the latter. Unless, of course, another potential investor — say AT&T or Liberty Media — comes sniffing around. Either way it’s going to be a volatile and stressfull week for Sirius investors.
The WSJ is a tabliod helping the shorts. Bottom line is that no one knows for sure. There would be other sources if any of this were true. With all the speculation, and information available. I’m holding out hope that Mel has a strategy that includes consideration to us shareholders.
Bankrupsy has no upside for anyone involved. In this economy, why would anyone with half a brain mess with a company that has growing subscriber base? Please someone…anyone…tell me?
How come shareholders were not made aware of Echostars offer last year? Don’t they have to make shareholders aware of such offers? I have done a little digging (very little) but have not come across it anywhere yet….anyone know about this offer made last year?
If I recall from corp law, they need to notify the board but not the shareholders. The board is supposed to do what is in the best interests of the shareholders, which they obviously felt was to reject the offer.
Still would be nice to know what that offer was though. It may help explain why it was rejected and show some strength.
Did anyone hear anything from Mel last week ?
With just a week or so left until its first round of debt obligations come due, Sirius is in a tight spot. As Karmazin told investors last week, the company needs to raise $175 million, and quickly. If it can’t it will end up either filing for bankruptcy or cutting a deal with Ergen. Given that Karmazin himself invested $2.7 million into Sirius stock last summer, Karmazin may well opt for the latter. Unless, of course, another potential investor — say AT&T or Liberty Media — comes sniffing around. Either way it’s going to be a volatile and stressfull week for Sirius investors.
It is amazing (but not surprising) that various publications are getting on the bandwagon of bashing Sirius XM based on “sources” quoted in the Wall Street Journal. It’s almost as if they are “reporting” just so to show their readers they are doing something.
There are “quotes” flying around that are not necessarily things that any person really said. For example, there is a “quote” of what Mel Karmazin supposedly “told investors last week” which is contained in the following paragraph:
With just a week or so left until its first round of debt obligations come due, Sirius is in a tight spot. As Karmazin told investors last week, the company needs to raise $175 million, and quickly. If it can’t it will end up either filing for bankruptcy or cutting a deal with Ergen.
Someone tell me, in the paragraph above, what Mel actually said. After all, there are no quotation marks anywhere. It does not say “Karmazin told investors last week.” It says “as Karmazin told investors” So what (if anything) exactly did Mel say to investors (and who are these “investors” anyway?). Also, did Mel say “and quickly”? or is that an editorial comment on the part of the writer. Did Mel really say “If it can’t it will end up either filing for bankrupty or cutting a deal with Ergen” or is that just another editorial comment on the part of the writer of the article. Even if one stretches one’s sense of belief, if Mel said anything like what is quoted, Mel would not have called Sirius XM “it”; he would have said something like “Sirius XM” or “we.”
So, with all this “news” floating around, perhaps Mel just said something to the effect of “We need to pay about $175 million in the next week or so.” Gee, folks, we all knew that!!!!!
Just speculation…If siri had 366mil as of Q3 and they were going to be cashflow positive like they have been the past 2 years. Then shouldn’t they have the cash on hand to pay the 2/15 debt?
cash flow positive in qtr4 like the past 2 years…Sorry!
btw . . . here’s the current list of who’s fault it is for the current crisis (in no particular order):
The National Association of Broadcasters
The FCC
Commissioner Tate of the FCC
Michael Hartlieb
Goldman Sachs
Mark Wienkies
All the Analysts
Moodys (credit downgrades)
Standard & Poors (credit downgrades)
The Yahoo Message Boards
Charles LaRocca (lack of tech/innov)
The Wall Street Journal
Anybody I’m leaving out?
oh yeah, I forgot . . I guess the guy who runs day-to-day operations has nothing to do with it, right?
Poor-poor Mel . . . what rough patch’a luck huh?
psych 101: displacement
George Bush – He has been blamed for everything else so why not this?
Oh don’t forget CRAMER!! Haven’t heard from him in awhile. Stopped watching after all that!
Hey Charles . . . I see a 9 year old kid just developed an iphone application . . .
nice work Mel, real fine work over there at SiriusXM . . . 9 year old kid outworks your whole R&D team; beautiful world
Did Karmazin ‘tell investors’ last week that we needed to raise the money or go bankrupt, if not deal with Ergen ?!?
I don’t ever remember hearing this from management at SIRI, but do remember the WSJ speculating a whole lot about this being the possibility.
If indeed this was never said by SIRI management, do we not do ourselves a great dis-service by continuing to propogate MIS-INFORMATION ??!!
Be careful as this is just what our enemies want……………..
The WSJ is joke now that it’s owned by Murdoch. There is history between Murdoch and Ergen. I wouldn’t be surprised if Rupert was working to manupulate a potential deal between SIRI and Echostar.
I called Blalock today and asked him 2 questions:
1. What’s the co stance on the Ergen reports? He said no comment!
2. How much cash is on hand? He stated as of 9/30 the co had 360mil on hand that could be used various way!
I remember calling him b4 post 9/30 financials and he gave me lower amount.
If the co is supposed to be cash flow positive like the previous 2 years, shouldn’t they be able to pay the debt off with cash on hand?