As a writer with a huge ego, I want the world to put me on a pedestal for publishing the only story out of the thousands written that made the claim that Sirius XM had avoided chapter 11, a full 3 days before it was made official. As an investor, I want to jump for joy that Sirius XM avoided bankruptcy. I want to join in the celebration of the more than 50% gain in the stock price but, I cannot.
Like many, I am a bit disappointed that SIRI shares did not respond better than they did due to its debt restructuring. I believe that SIRI would be fairly valued at 1.40 to 1.50 a share, yet that is not my immediate concern as I believe it will get there soon enough. Don't get me wrong, I'm glad a deal was struck but, I'm at a loss as to why it needed to be.
No, my problem lies in the deal itself. To begin with, Sirius XM claimed to have nearly 400 million dollars in cash as of its last SEC filing. I'm confused as to the reason the company felt a need to secure a deal to meet its February 2009 debt obligation of only 172 million dollars in the first place. Has the cash burn increased so dramatically as to have wiped out the company's cash reserves? That I suppose, will be answered at the next quarterly report.
The thought that I am stuck on however, lies in the price that Liberty paid to acquire so much of Sirius XM. Just a few months ago, Sirius, in a merger of equals bought XM for 4.6 BILLION dollars. That figure does not include the attorney fees, fines nor the general loss of productivity that occurred while the FCC battle went on.
Having doubled the size of the company at such a high cost, to turn around and sell 40% of the combined company for a minuscule 530 million dollars does not sit well with me. This great deal for Liberty begs the question; if 40% of the company is worth 530 million, is the company as a whole only worth 1.2 billion now? Of course not. It occurs to me that without that 4.6 billion dollar mistake, the company would have not only survived, but thrived.
Position: Long Sirius XM