Test For Echo – Ergen Gaining Leverage
With news reports swirling about Charles Ergen making a move for Sirius XM Radio, it has become hard for anyone to really know what is happening. Reports that Ergen tried to buy the company in late 2008 joined other stories that had him trying to force bankruptcy, and carrying an interest in the terrestrial repeater network. Amidst all of the confusion, shareholders find the equity price right back where it was prior to the news coming out.
Since the merger, and the collapse of share price i have been asked time and time again about the prospects of bankruptcy. My opinion was always the same. I believe in the concept of satellite radio, and was more worried about someone swooping in to buy the company cheap than I was about it going belly up.
Charles Ergen is doing something very basic. It does not require rocket science to see it, and once investors understand it, the clouds could begin to clear. Ergen is gaining leverage. He is covering his bases, and making the moves that will give him the best chance of reaching his desired goal. The real question at hand is not what Ergen is doing, but how Sirius XM Radio deals with the situation.
Now that the cat is out of the bag, Ergen has perhaps lost a bit of his leverage. The debt he has acquired is not enough to take control even if it were all converted to shares. He likely still needs to buy up shares on the open market, which could begin to drive up the share price. In addition, if other players are thinking of moves of their own, whether for profit reasons or competitive, then the dynamic could change even further.
If all of that was not enough to consider, there is the regulatory issue to think about. Will the democratic controlled FCC allow a satellite television player to become entrenched into satellite radio as well? Ergen is not only in a poker game with Sirius XM, but the FCC as well, and the stakes are high.
This will all play out over the coming weeks. Does Ergen have enough leverage? What will the company say in their next shareholder meeting? Shareholders, who have already been waiting for a long time to see a glimmer of hope now have to digest a possible take-over. Thankfully, it would be hard for this issue to drag on as long as the merger did.
Position – Long Sirius XM Radio
The answer as to what Mr. Ergen’s true intentions are lies in “who” the WSJ “source” is and what their motivation is for leaking the news at this precise moment in time.
The source most definitely has an aggenda. Figure out who the source is and the motivations can be easily narrowed down . . .
The truth lies in the source . . .
The thing that makes me think the “source” is from the Ergen camp is the follow-up reporting which suggested Ergen was not trying to force a bankruptcy …
If, however, the source is from the “karmazin” camp . . . it gives Mel “cover” to make an “ugly” deal with Charlie because he had to “play the hand he was dealt” (“Do I like the hand I’ve been dealt?” . .. from an earlier WSJ article) or “the NAB was shopping for a friendly judge” hence the “ugly” financing.
Obviously the leak is intentional. If the source is credible, shareholders are being set-up for something.
Don’t be too sure about COH. Last time Mel stated that he expected to “generate positive free cash flow in Q4″ was on November 10, 2008. Go back and look at the slideshow from the 12/18/08 annual meeting … unless I missed it, I saw no direct mention of it in the slides . . .
I agree that the source of the leak is the key here in understanding the merit of any of this… The WSJ already put out a disclaimer about the original article regarding substantiating the accuracy of the article. If this is leaked from Mel’s camp then I agree we are being set up for some really bad news… Anything is possible here…. I find Mel’s camp leaking this to be improbable though. They have been very tight lipped up to this very timely article over what would appear to be old news…..
I think we can make a guess on one person or at least someone who knows.
Michael hartlieb!
Are you kidding me, you are giving that luny too much credit.
Ok then……..let them work together, and if Mel is up against the wall and has no where to turn to get the debt retired…..Mel, wake up dude.
A joint venture would be great, but I still favor it in the hands of SXM………
Let’s see. Sirius and XM merge in July. Clayton steps down and joins the board of Dish network. A few months later an offer is made from Dish to control part of SiriusXM. Hmmmmmmm????? Where is MK gonna go with this?
The triangular relationship here is more than coincidental . . could this be the first step in the private equity play that many shareholders have long feared at these depressed price levels?
Is the “bankruptcy-card” being played to give cover to an “ugly” deal?
Sirius Roadkill
Problem with your scenerio is all three companies are publically traded. Nothing really private about it.
BK card could be being played as you noted.
And how long would that media-merger approval take? And what are the odds it would ever? Would they play the survival of the company card in hard times? AGAIN?!
You are correct if the buyer is Echo Star/Dish but I am still fuzzy on whether or not the buyer of the debt is Ergen individually?
Very confusing . . .
Maybe I can get a dish on the top of my car now too? LOL.
Would that be the large or small dish?
would it be as big and beautiful as that antenna that ATT has for their video sat service?…lol.
Mr. Savery doesn’t see what is really going on here.
Charles Ergen couldn’t care less about Satellite Radio as a business.
He is making a play for the technical infrastructure of the company.
All he needs is to acquire enough debt to force a bankruptcy.
When he does that, he comes in and negotiates a deal with the receiver for the rest of the debt.
Who else would want it? DUH!
All the talent is forced to redo their deals.
Bye Bye high-priced talent like Stern, Mad-dog and Martha Stewart.
The stock holders get screwed and he gets the company hardware, DEBT FREE and far cheaper than he could by getting direct and worthless stock shares.
Tim Markoski said:
“All he needs is to acquire enough debt to force a bankruptcy.”
~~~~~~~~~~~~~~~~~~~~~~~~~
Ergen cannot just buy up debt and “force” them into bankruptcy. The only way he can force them into bankruptcy is if they default on interest or prinicple payments. The most he can do is refuse to negotiate for a restructure of the debt — but if Sirius makes the cash payments, then that locks Ergen out of forcing bankrupcty.
——–
Well….at least we will find out soon. Unlike the endless waiting for the merger fiasco that took nearly 2 years.
The Feb debt is coming up next week, so I am sure we will find out if the string of negative WSJ articles were true or just more short fear mongering.
We Sirius shareholders should be used to waiting….but these last few days news plus the total silence from Mel has been torture. Is his silence confirming the worst? Or hiding a pleasant surprise?
Hope and fear are having a tug of war with our emotions. I know the economy is crap right now….and all investors are in the same boat so to speak….but Sirius Shareholders have had it tough. Before the economy tanked, we went thru 18 months of hell with the merger delay. Then the “ugly” deal that crushed our hopes of a pop. Then the sickening drop in share price.
And THEN the economy tanked. So while everyone is suffering now….we’ve been suffering ALOT longer with no relief.
But….at least we can confidently say we know the end is near. Soon we will know. All will be revealed. We’ll either be wiped out like the shorts and bashers say….OR Mel will come out with some great news about the debt being taken care of and a new beginning will commence.
The last couple of weeks, I’ve begun to average down again. What the hell. At $500 a pop, I’m picking up 4,500 shares at a time. My average price per share is just below a buck now. Gosh….I never would have imagined. Of course that won’t matter if Sirius goes BK after a hostile takeover…..but should they survive….It’ll be nice to at least break even.
That is something I haven’t really thought about. Will I let it ride? Or be happy to just get out with my original investment I made almost 4 years ago? There once was a time when I dreamed of $5 a share. But after going thru the last 2 plus years…I may just want to walk away if I am lucky enough to break even. I guess I’ll cross that bridge when I get to it. For now, I am patiently waiting like everyone else here. And averaging down cautiously, but little by little until I hear from Mel.
But, what is Sirius takes care of the Feb debt with cash, or a combination of cash/ shares, and then decideds to play out the rest of the debt as it comes due… this could potentially drag out all year.
Yup. My guess is that they skip the 2/17 payment and we hear nothing … absolutely nothing official until either March 1, when all debt is addressed in totality, or until the grace period on the Feb conv is at expiration (30 Days) so potentially, say March 16.
More hand-wringing for another month? Brutal.
Sirius Roadkill said:
“My guess is that they skip the 2/17 payment and we hear nothing … absolutely nothing official until either March 1″
~~~~~~~~~~~~~~~~~~~~~~~~~
Such a move would be a default of the Feb09 Bonds due 2/15 — by law, they would have to file an 8-K stating that they defaulted on the loan payment. They cannot just say nothing.
I have maintained and still believe that we will hear something, no later than COB this Friday, February 13th… one way or the other.
——–
homer985 said:
“Such a move would be a default of the Feb09 Bonds due 2/15 — by law, they would have to file an 8-K stating that they defaulted on the loan payment. They cannot just say nothing.”
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
homer, thanks for the reply . . . I originally thought the same . . . but later read somewhere else that the conv-bonds carry a 30 day grace period on repayment of the principal without legally triggering default?
Appreciate any further thoughts you might have …
I looked all through the indenture and didn’t see anything about a grace period. I believe that such a thing would have to be negotiated with the holder(s) of the bonds — but it would still technically be a default.
I’ll look again — but I didn’t see anything the first time. Perhaps I’m missing it?
——-
FWIW, here is the indenture:
http://idea.sec.gov/Archives/e.....ex4-20.txt
Current shareholders have to concede that 40-51% of the company will be owned by someone else in the very near future, be it one or more parties. At this point shareholders can only hope for survival. A partner with deep pockets is the best scenario. And it could have been worse. It could have been DirecTV and Murdoch.
kingfrogcash said:
“Current shareholders have to concede that 40-51% of the company will be owned by someone else in the very near future, be it one or more parties.”
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
For this to happen, you are assuming that the bonds held by Ergen (or whomever) would have to be converted at CURRENT stock prices.
However, the conversion of the Feb09 and Dec09 bonds have a very high conversion price. The only way that they can be converted at CURRENT stock prices is if Sirius agrees to it and settles with the holders in this way. If Sirius does not and they repurchase the bonds with cash or refinance it with new debt — then these outstanding issues will not convert into the new shares…
———
Homer, they have already converted 2/15 debt to market rate stock. That’s what I am assuming.
Although my target may be low. It might be that current stockholders only have a 40% stake after all the shares are given away to debt holders through 12/09
kingfrogcash…
The point I was making was that Sirius doesn’t HAVE to convert at the current pps price — if they’re able to repay the bonds at maturity with cash (cash that is raised via a refinancing or another way), then Ergen is SOL with his hope that Sirius would convert in shares.
———
frigginregan -
Unfortunately, Mel deserves a lot of the blame for the drop in the stock.
His silence speaks to the nature of the inevitable.
You can’t blame him for market forces that are out his control but it is certainly clear he has made some bad decisions regarding financing.
In retrospect, the merger itself should have been scrapped when it was clear it couldn’t be done in a timely fashion.
XM was already on the verge of bankruptcy and now refinancing their debt along with the acquisition has leveraged the merged company past the point of no return.
Stern mentioned on yesterday’s show that if SiriusXM declares bankruptcy in order to void it’s current contracts, he is all done.
Stern is the only reason Sirius existed at all.
Take him away and the death spiral with subscriber losses begins.
The stock holders will get screwed.
There is simply no way around it.
Think with you head and not your heart.
Tim, His silence speaks to being in a “black out” period while waiting to report 4Q and Annual 2008. The same reason that they cannot exchange insider stock.
In retrospect, the merger itself and whether or not it should have been scrapped is yet to play out.
His decisions to get financing done for XM debt, avoided XM’s bankruptcy 6 months ago, while capturing the spectrum and keeping a competitor out of the SAT RAD business as a decision has not fully played out. All this talk of EchoStar and Ergin might simply be a way to Sell some of those assets if compatible. We really don’t know yet because no source has been named for this BS yet.
Sirius existed before Stern, and I agree, would hurt the company if he were to leave now, but if Sirius XM goes into BK now, who cares what Howard would do? He has 2 years left in his contract and he is just nervous like the rest of us.
cos1000 said:
“His decisions to get financing done for XM debt, avoided XM’s bankruptcy 6 months ago,”
~~~~~~~~~~~~~~~~~~~~~~~~~~
Again, a misconception. XM had NO impending debt that was maturing last year… most of their debt had put options in case of a change of control, which meant that they lendors “put” the debt onto Sirius to pay off the lendors within days of the merger closing. That is why XM’s debt had to be refinanced.
Other than that, XM didn’t have any bonds maturing until Dec09.
———
Homer985, My point is that without the merger it is not clear that the use of the addition 100M that is now part of the May 09 debt would have been allowed by UBS AG, or that XM would have had the ability to secure additional financing without the merger may have. I concede the speculation I inferred, that due to a lack of COH for operations and debt interest payments that would have become due, that IMO< it is possible that they may have had to seek BK protection even before the 09 debt principal became due.
Cos… the addition of the $100 million was secured against their assets – because XM had the room for it, with regards to leverage. The merger had no implication on it. XM noted a long time ago, that they had more room — just as Karmazin has noted that they have room for an additional $200 million.
But as for the speculation, XM had more COH than Sirius prior to the merger — and after the merger was announced. Their cash burn was similiar… but with Sirius’ need for CAPEX to launch their satellite replacements (it is still facing) — it is my opinion, that Sirius was no better off than XM in the end.
I disagree with you.
——-
Tim Markoski said:
“XM was already on the verge of bankruptcy and now refinancing their debt along with the acquisition has leveraged the merged company past the point of no return.”
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
FWIW, XM was no closer to bankruptcy than Sirius was, prior to the merger. This is a common misconception.
Sirius had $300 million due in Feb09; and XM had $400 million due in Dec09 — with slightly more cash on hand than Sirius. The May09 XM bank debt was likely going to be extended all along (I have expected that for 2 years)… so I purposely leave those out of this discussion.
When you look at it above, you see how XM was no closer to bankrupcty than Sirius.
Remember, all that XM debt refinancing in August was mandatory due to the change in control of XM. It had nothing to do with debt that was maturing.
So I disagree with your assessment greatly.
———
Homer, I guess the point is that pre merger they were “two dogs drowning in the same pond”. With the merger the both stand a better chance of surviving…
That I agree with wholeheartedly…
Disagree all you want.
XM was hemorrhaging cash, subscriber growth was nonexistent and they were losing money as a business.
They wasted millions on worthless advertising and programming like Oprah and STILL didn’t get anything to show for it.
XM simply would not have lasted through 2009 if the merger did come to pass.
Howard Stern going to Sirius was a death blow to XM.
Now Sirius is so leveraged bankruptcy is the only way out.
Back in mid october i spoke with paul blalock. He told me siri had around $400 mil then and the plan was to they had the 2/15 debt covered with cash. They would exchange debt for equity on the 2/15 bond or look to finance the balance. Thepoint he made was that they had the cash on hand!!!
What happened to this scenario?
Do they still have the cash or are the reports that Mel stated they need to come up with $175 mil or succumb to Egren or file BK?
They had $366mm at the end of Q3. They were projecting something like 220k net adds for Q4. If you divide ‘09 projections of $300mm by 4 you can back-in to $75mm as a possible pro forma of Q4 ‘08 . ..
Can’t imagine Q4 could have been worse than 220k adds as car sales for December annualized to somewhere around 9.2mm. The cash burn between the end of Q2 and Q3 was $60mm.
The figure Paul Blaylock gave you was the end of Q2 figure because in mid-October they had not yet reported earnings.
If you listen to Mel’s Autoline interview on 10/24/08, you will note that he references 12mm car units for ‘09 . . which could be worrisome to the $300mm full year pfcf unless a big 2nd half turnaround.
Also noteworthy to me . . the Q3 earnings report was delivered on Nov 10, 2008, basically 40 days after the end of the qurter . . during a period with significant accounting reconciliations required and complicated pro forma reporting for the first half of the year which was premerger . .
Today we are 40 days out past the end of Q4 in what should be simple accounting yet I have heard nothing as to when the Q4 results will be delivered . . . which makes me think that it will be tied-in to the announcement on March 1 (or March 16) based on the Evercore restructuring plan . .
4Q results to be announced Feb 23.
Thanks JP . . . where is that info posted?
Company adivises that they have not issued an official release date for Q4 but are targeting last week of August due to March 1 filing requirement . . . stay tuned.
According to etrade:
Q4 earnings are expected to be announced before market hours on February 23, 2009
Estimates: -0.06 | -0.066 | -0.08 (High | Mean | Low)
just re-read my post . . should have said “last week of February” not “August”
thanks for the info . .
They still have cash to cover the Feb 16 payment but they also have a $50 Mil payment due to Major League Baseball for licensing.
Making both of these payments effectively wipes out ALL of SiriusXM operating capital.
i don”t believe that………..
We still have not heard a peep about B of B money, the lifetime sub push, MORE synergies reached………You could get crazy with a calculator and say that they could have $800 mil oh?????????
I will say this again: the WSJ is making this look all too easy. Just buy up debt on the cheap, walk in, and take over a company with hundreds of millions of dollars of assets. Cancel all contracts that you deem to expensive, have no debt on the books, and start over. If only it were that simple. I cannot believe in reality it is that simple. I still say that with if I saw this correctly 56% of Sirius is owned by the banks and the big time mutual funds, I dont quite see things turning out this way. I do not see Sirius not being able to find a way to stay independent with that kind of backing. I didnt say it would be easy, but I dont think that the WSJ or any of these other so called “analysts” have it quite right either.
There also has not been any “Beneficial Ownership” forms filed on behalf of Ergin, EchoStar or Dish in Sirius Xm SEC filings. I have been looking at all filings since the merger and do not find any 13D, or abbreviated 13G schedule files, identifying “Beneficial Ownership”. The only beneficial owner who filed this form is Apollo on 8/11/08. The schedule needs to filed by any person or persons who directly or indirectly holds voting rights to more than 5% of a company’s shares within 10 days of such a status.
Cos, excellent point! What is the timeline for filing that report (how long is the window for filing?)
oops, sorry. got ahead of myself and missed the 10 day requirement.
I guess, however, if Ergen is simply holding unconverted debt there would be no reporting requirement?
That is my assumption also…. Bond debt, although their are improved BK rights, until converted do not have voting rights. The Feb 09, converts as of the end of the 3Q, still had GS holding $123M of these converts, when Goldman filed their 13F-HR on 11-14-2008. So whether GS sold their interests to be a player here or not is not known yet. The 4Q 13F-HR should be filed withing the next week for GS, but by then all of this should be known anyways…
Well……….
Bought Siri at approx. $7 WAY back when & have been an XM subscriber since Feb 02 (that makes me kinda an “old timer”). WAS a RABID supporter of SatRad untill the merger. Feared that the merger would result in less music and decreased quality of programming and higher subscriber prices. This is EXACTLY what has happened. My attitude about SatRad has changed since the merger. I care not a whit about Stern & personalities like him or other “Mega-Stars”. Time to let all of them go. It’s the music,information, and entertainment that motivated me to subscribe in the first place.
In my opinion, kicking out Karmazin and the individuals that have made a wreck of SatRad is fine with me. I probably will NEVER get my money back but if there is a chance that SatRad could get back to the basics of providing QUALITY programming I don’t care what happens. The programmers of the merged company are total idiots.
Mel & his minions have totally ruined what used to be the greatest radio medium since the “Underground FM” of the late 60’s & early 70’s, it could be argued that pre-merger SatRad WAS even better.
Nicholas, I HAVE ALWAYS SUPPORTED MEL AND MGT AND BELIEVE THEY SHOULD BE LEFT ALONE TO DO THEIR JOBS, BUT DONT YOU THINK WE NEED THEM TO BE TELLING US THAT A TAKE OVER WOULD NOT BE THAT SIMPLE! MEL NEEDS TO RESPOND NOW. HIS SILENCE IS BEING INTERPRETED AS A BAD THING!
With all the speculation here, I’d like to ask folks a simple questions (and tell me if I’m crazy).
Sirius XM is on the verge of turning a profit for the first time ever. In this economy, that’s amazing. Why would anyone, want to mess with a business with 20 million subscribers, that appear to be on the up and up (except for the financing). 20 million paying subscribers is not chump change. A bankrupcy, or getting rid of top talent, or pillaging the sat assets, would seem insane. Why would someone destroy something that works, in order to try and fix something that is broken?
I agree. I think it is a major step backward to wipe out the common. It will hurt the “popular” growth of the company. I can only speculate that, based on his past record, Mel K. is looking for a more “synergistic” way to keep everything intact. Though the Common will no doubt suffer greater dilution, he is looking for the financing solution that will hit all the right notes for all concerned. But- anything and everything is possible in this F-d up situation the economy is in now. IMHO>GLTA.
I expect no solutions till the end of Feb.
P.s. How can he ask for Reverse-split approval and billions more in shares at the Dec, meeting, while at the same time intent on re-structuring through BK? The economy sucks but he is trying to avoid it “at all costs”.
Mel knows that many of the subs are also investors–Keeping one happy therefore keeps the other
I have to comment to let everyone know that today’s postings have been a pleasure to read, as well as being informative. It is wonderful to hear information and thoughts of intelligent people trying to help themselves and each other, without calling each other names, as if they are still in junior high school!
Let’s all keep up the thinking and respect for each other, and each other’s ideas. It really is a pleasure, no matter what happens to the company (although, on that end, I am cautiously very optimistic!)
BREAKING NEWS……….!!!!!!!!!!!!!!
SiriusXM reported to be filing for bankruptcy!!!
Ref: New York Times article approx 1 hour ago
All over the net. SiriusXm might be filing for BK. ALL shareholders have just been pissed on. We are Done.
This sucks, Blows, bites and licks.