Sirius XM Cramer Wars
As any Sirius investor knows, Jim Cramer has seemingly been attempting to pummel the stock lately. There seems to be a mass knee-jerk reaction to perceived negativity, with no one venturing out to look at whether or not his statements have any merit. In this case the argument stems from opposing viewpoints, yet all parties seemingly have the same facts.
Firms such as Merrill Lynch and Citigroup have set much higher price targets than Jim Cramer and Goldman Sachs. Just like Republicans and Democrats, they are looking at the same picture and arriving at opposite conclusions. It’s easy to see the reasoning behind Merrill Lynch’s Jessica Reif Cohen’s analysis of the stock as she continually provides updates and gives solid reasoning for her methodology.
In the case of Cramer, he seems to offer only opinion and that is where the problem lies. According to a recent filing from Goldman Sachs however, his opinion may be based on certain facts that I have discovered. As it turns out, Goldman Sachs owns nearly 130 million dollars worth of those February 2009 convertibles that Jim references in most of his Sirius XM “bashing sessions.” Most people understand that Jim worked for Goldman Sachs and it would stand to reason that certain “information” found its way to him from the top. I’m not saying Goldman is manipulating the stock price, I’m just saying Jim seems to be warning people that that the price may be manipulated going into Q1 of next year. That’s not what a bad guy does. A bad guy would tell people to buy despite the risks.
Everyone is blaming Jim for the merger deal getting killed initially and forcing Sirius into a corner. It is beginning to look more to me like Jim is a pawn in all of this. What appears to be Goldman padding their already beefy portfolio with Sirius XM stock is more likely to be short covering as the “bond bullies” of Goldman and Friends keep manipulating the stock by shorting and covering; over and over again just as Jim stated. (IMHO) The conflict boils down to the perceptions of traders vs. investors. The long term growth prospects of Sirius make it an appealing stock to own however short term bumps are something a trader would play rather than go long on.
Not coincidentally I’m sure, Jim has come out and stated as much without naming names or pointing fingers. When Mel did the Mad Money interview, he also gave insight into this problem. Cramer has suggested that people looking to initiate new positions wait until the refinancing deal is done in February. That’s probably a prudent thing to do if you are in his line of work. Mel stated that the company is working to get this convert issue out of the way. An investor on the other hand would use any dips to lower their cost average.
The prospects of Q4 could cause the company’s stock to reach that magical 4.00 price at which time the convertibles would execute the swap and go long. In my opinion, Cramer may actually be looking out for the little guy in this as I believe he was just as blindsided as the rest of the Sirius XM investment community, but of course he cannot admit that. It may be time to give Jim the benefit of the doubt, and begin a conversation about what to do about the convertible situation and the arbitrage that has been plaguing shareholders.
In my opinion I believe this is the first priority of Mel and Co.. I believe they are working diligently behind the scenes to get these matters in order. As an investor, I’ve certainly had ups and downs but I’m ok with that because the long term prospects of the company are sound in my opinion. Is Sirius a stock for the weak hearted? Possibly not at this time. Is Jim Cramer doing what he feels is right? Probably so based on the information he has.
Position: Long SIRI
Not going to get into the conspiracy theory of GS, but that filing also shows that they hold $70 million of XM’s $400 million in 2.75% convertible notes (which is now 10%) — and expire in Dec 2009.
As for the refinancing, Karmazin mentioned on one of the shows — with regard to the debt maturing/expiring next year — that they plan on taking care of some of that sooner, rather than later.
As I noted in other threads, there is a portion of this debt that will bought back in cash (since it’s very minimal) as well as convert, since it’s above the conversion price. The problem is the two convertible issues for Sirius and XM; plus XM’s expiring credit facilities.
I do not see them giving a tender offer on the Sirius and XM notes yet, that would involve issue new debt first — and this is a bad time to do this. Maybe in a couple months… however, I think that Karmazin may have been referring to the expiring credit facilities in that statement. It has been my opinion that XM will work a deal with the banks to extend the current facilities… and I think that that is what he’s talking about. If they can work this deal — then that would take $350 million of the $1.1 billion off the block, that everyone is talking about… and basically leave them with the two convertible issues.
I think if they can do this first issue, it may take some of the pressure off of the stock. Then when they can buy back the two convertibles — it will take even more pressure off.
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I think Cramer knows something and is trying to warn investors without letting the cat out of the bag. Of course I’m still long as of today closing, so hoping I’m wrong, but if I decide to sell and wait, well then…..It may be too risky to sell either way because a game changer could come out of left field and send the stock soaring.
I don’t see Cramer bashing right now, but obviously has changed his tune. Something is up.
Now unless Mel comes out after Labor Day and says he has secured financing without further dilution and says he found another 200 million in synergies about the 400 million, we could be in for a bad time.
I wish I did not feel this way, but 5 years of getting hope smashed & getting taken to the cleaners because of lack of earnings and looming debt has done this to me.
Lack of merger pop and getting crushed instead made me much more cautious and realize pumping on message boards is a useless waste.
We need a game changer that nobody is expecting to price through the converts without getting called on the debt.
>>>Now unless Mel comes out after Labor Day and says he has secured financing without further dilution and says he found another 200 million in synergies about the 400 million, we could be in for a bad time.
Keep in mind that the two convertible issues that are maturing next year, would have contributed over 105 million shares into the float — had they converted. If Sirius were to replace this debt with non-convertible, then this would be a significant reduction in the fully diluted sharecount.
But don’t get your hopes up — I don’t see that happening. They will probably replace them with a new convertible, at whatever the going rate is at the time. The unfortunate thing is that the conversion price will likely be significantly lower — so that would increase the number of shares issued upon maturity… thus there will be “some” new dilution.
I guarantee if/when they replace these convertibles with new convertibles — all you’ll hear about is the “dilution” of the shareholders… and all of the media will neglect to note that it would be a REPLACEMENT for an already dilutive instrument.
That’s just the idiocy of the media…
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Homer985 I agree that extending XM’s $350 mil credit facility would take some pressure off especially if they could pay down that debt enough to make room for XM’s MLB escrow payment after the MLB’s $60 Mil take for 09. At least that would start to show a pay as you go on that content contract and allow them to focus on debt that is truly dilutive to shareholders: the $750 Mil in convertibles, Feb 09 $350 & Dec 09 $400 Mil. Honda, as you pointed out on an earlier thread will probable convert their debt and sell the shares with a .69/sh rate for what around 32-35 mil. And as you’ve also pointed out the 8.75 Sept converts for around 1.75 mil can be paid in cash, with no realistic convert price anyway.
Homer,
What do you think could keep this stock above 1.50 or even get to $ 2 in light of what the inevitable convertibles and/or financing due in the first quarter.
Also, knowing they will probably handle this soon. I think Mel was giving us a hint and wants to put it behind him and the company to get down to the focus of making $ and growing the company.
Basicaly, what do you think they would need to say at the conference call after Labor day ?
I wonder how far after Labor Day also ?
cos, XM has already funded the $120 million escrow payment. XM has stated that they are trying to work a deal with MLB, to get them to accept a letter of credit, in lieu of the cash payment. This would free up $120 million cash back to XM to cash & equivolents, if they pull it off.
As for next years $60 million MLB payment, they make those every February as prepayments to programming — and they’ve been doing it out of operating cashflow. I see no reason they can’t do it again in this coming Q1.
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“Investor” — I don’t think it’s a matter of keeping the stock above $1.50 or $2.00 — I believe what is holding this stock down IS the financing issue.
For those of you who were around with us in 2001 and 2002 — the thing that killed these two stocks was the pending financing issue at the end of 2002. It drove Sirius down, well under $1 and XM down under $1.60… (that’s when I lowered my XM cost average down to near $4 and bought Sirius for $0.90). Anyhow, the stocks were being crushed, due to the speculation of what was going to happen… but once it was done, they rebounded. Plain and simple, this is what is going on with these stocks… as soon as they set a plan of how they’re going to refinance, I believe you’ll start to see a turnaround. I think the credit facilities come first, then comes Sirius’ convertible issue… XM’s convertible probably won’t get done until this time next year, IMHO.
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rc
I’m not claiming Cramer is on our side at all. I think like the rest of us he expected a pop on the merger…I’m saying he was just as surprised as any of us to learn that there is an arbitrage play in effect here.
My opinion is that he cannot in good conscience, knowing that the hedge funds “bond bullies” have an agenda to keep the price surpressed, recommend Sirius as a new position.
He has never said to sell the stock. He is saying to wait until the debt issues are resolved if you want to get in. No mention has been made by him as to what you should do if you are already long SIRI.
As a person who gives financial advice, that is a matter of fiduciary responsibility. He may still believe that SIRI is capable of becoming a 5.00 stock by March, but the issue of this type of debt and what he knows about these specific converts prevents him from saying so.
Homer-
Thanks for your response.
My opinion is, I guess if your playing with $ you may need in the next 6 – 9 months, then you should sell now.
If you can weather it, then your looking at big potential upside.
Maybe a triple to $ 4 by end of next year.
Homer, I agree that if they can pull off that letter of credit as opposed to the escrow holding that would take some pressure off and allow the 120 to be used, hopefully to pay down debt. My point was that I believe that the banking credit line was at 250 mil in the spring and their escrow was light after the $60 mil payment in January 08. It was my understanding that the additional $100 mil issued in June 08 was to reconcile the escrow/ cash payment problem. Seemed to me like robbing Peter to pay Paul, not funding the deal from operating cash flow.
Brandon,
This will be my last post on this subject and I’d like to thank you in advance for your response.
“My opinion is that he cannot in good conscience, knowing that the hedge funds “bond bullies” have an agenda to keep the price surpressed, recommend Sirius as a new position.” >>> Is it safe to assume that you believe others (Merrill, S&P, Lehman, Citi) have no good “conscience” or no conscience at all for recommending to buy the stock NOW and cliaming the stock is “massively undervalued” NOW???? You cannot have it both ways!
“I’m not claiming Cramer is on our side at all. I think like the rest of us he expected a pop on the merger…I’m saying he was just as surprised as any of us to learn that there is an arbitrage play in effect here.”>>> He was obviously wrong before the merger so what makes you think he knows something and is right this time around????
“He has never said to sell the stock.” >>> It sounds like a sell to me when he has a $1 price target within the next six months which by the way, again, is the same exact same PPS and time period as GS analyst’s who has a sell rating on the stock. Come on now Brandon, the stock was trading around $1.48 when Cramer came up with his price target of $1 which is more than 30% below the stock price level at the time! Doesn’t this sound like a “sell” to you?
rc
doesn’t have to be your last post…
On your first point my response is that I believe he is privvy to info from Goldman that others firms are not..
second point you could be right…but its an opinion that he is entitled to based on his perception of the overall picture. Even citi and merrill don’t agree…they just both happen to diagree to the upside…
third…just because a stock will experience a hiccup is not a reason to sell…read the article again. There are different plays. A traders view and an investors view. The average investor may do well to ride out the stock hiccups because they may never materialize vs. someone who wants to jump in now that may face a risk that it will.
In fact, he simply recommended that anyone looking to get in wait until the refi was figured out…
Again…he has never addressed long term prospects with the exception being that he agreed with Mel that it is the best play in the sector..
Brandon, where would Sirius get the cash from to buy the notes?
I don’t buy into the conspiranoid theory Cramer’s fronting for Goldman Sachs or any institutional investor to clear out the suckers on Sirius just in time for a bull run. In fact, I have difficulty believing Cramer’s influence on investors is as strong as many are alleging. As opaque as the company’s management has been on their business model and financial condition, they’ve got no one else but themselves to blame for a spooked Street.
They should have had Sirius channels prepared for cross-migration onto XM frequencies (and vice versa) immediately upon the merger’s approval.
They should have introduced a basic tier of 50 or so channels priced under $8/month.
I could go on, but the point being Jim Cramer had nothing to do with those decisions. Neither did Cramer engineer the oil, credit, or housing bubbles that have destabilized the overall economy and sabotaged Sirius’ #1 market; OEM sales. Scapegoating Cramer for the company’s poor performance in the market is irrational.
When a stock trades 100 million shares, 75 million, 50 million, 35 million and today 27 million at the flat line, what does that tell you? This stock is being manipulated, period, end of story. You can bang your heads against the wall until kingdom comes, predicting where the stock should be trading. Until the manipulation ceases, expect the the flat line for a very long time.
…and yeah, I forgot to mention, Cramer is a BIG part of the problem. He is a lying POS. He has admitted he was a former stock manipulator and stated he could move the entire market with as little as $5 million. He is the lowest form of scum you will ever meet. He would steal your money in a second.
you can’t be serious (note the spelling, there is no pun intended here)…
Hey Brandon,
Besides the debt and financing, do you think there is ANYTHING…ANY news between now and February that could move the stock up significantly or help it break thru this negative perception that is holding it down?
Sirius’s Good 2nd quarter results(it’s last as a solo company) failed to move the stock, but what if they surprise everyone and have a better than expected 3rd quarter as a combined company, or if Mel comes out with some unexpected news(besides the debt) that is good?
Do you think there is ANY such news that could change Wall Streets perception and make the whole debt issue a non issue?
Thanks
cos1000,
XM had $211 million in cash at the end of Q1. But they had the $60 million MLB payment due in February; they had the $48 million balance payment for 2007 to SoundExchange come due in Q1; they had the settlements with the record lables that they had to pay on in Q1; and they had the $120 million Surety Bond expiring at the end of Q2 that was in lieu of the escrow payment to fund.
So between February and May, XM borrowed all $250 million on the credit facility… $60 million to MLB for 2008; $120 million to the MLB escrow deposit; $48 million to SoundExchange; plus payments to the record labels and on merger costs taking up the rest.
In the past, the $60 million MLB payment was just taken from cashflow during Q1 (which normally took it negative), but given that they had so many other big draws coming in that short period — XM was left with drawing all of their credit facility. They had $250 million come in during those two quarters — and paid out $230 million, plus whatever was payable to the record labels and on merger costs. Had they not had all of these other payments, it is my opinion that the MLB payment would have just come from operating cash flow and cash on hand.
The $100 million term loan was taken in June to pay off amounts borrowed on the GM facility during that time period and to replenish cash in the company. The fact is, while the company was cutting expenses like crazy in the business — they had money flying out the door at the same time on all kinds of issues. Merger costs alone in the last year drained them of significant cash — which came right out of their already dwindling account. You remove all of this stuff — and then making the $60 million MLB payment in February is peanuts to the company.
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screw cramer!
screw gs!
don’t worry about the stock price right now.
just buy SIRI radios & subscriptions. we must do more than fume and vent !!!!
buy ala-cart asap, please.
frigginregan
I think there are a lot of possibilities. Whether they come to fruition or not is another matter. I don’t run the company, and I’ve never seen a single idea regarding operations by any shareholders adopted by the company.