The Price of Liberty
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
Amen Brutha. It’s been one mistake after another….but THAT one was HUGE.
Too much smoke and mirrors with this company. Give us some straight answers for a change.
I agree with this article. Just a month ago noone was really concerned about siriusXm feb debt. We all just knew siriusXm could pay it off with cash on hand. I made that comment myself. Then, All of the sudden you have the press saying that they needed the 175 million or they had to file BK. Did they burn that 400 million and how did they burn through it so fast?
The liberty deal could have been avoided in the short term but still something would have had to been done about the may debt. I think mel dropped the ball when he said he had people saying they would refinance the debt but the terms wasnt all that attractive. Ill bet you they are looking attrative now when you look at a 15 percent rate.
Alot of smoke and mirrors as Paul said. Ill tell you this. If siriusXm reports next week and says they got 5 or 6 hundred millon cash on hand im going to lose it. I wont be held responsible for my post 😛
guys i think we all just need to step back for a month or so and see what happens. Lets not forget that Mel does not have to accept the second half of this loan if something better comes in. ITs quite possible that know that both loans were gonna need to be addressed they made teh calculated decsion to finance the smaller amount and keep the cash reserves to hammer away at the larger amounts. There hopefully is gonna be an influx of cash from internet subs in particular the ones assoicated with the IPHONE app. They hit a chunk of may with cash and there was already a chunck of december moved to 2011 and then its possible that they will be able to get someone else into this process who would be willing to take on the now much smaller debt load at better rates there for allowing SIRI to walk away from the second half of the liberty life line. Look i see that this can be viewed as me looking through life with rose colored glasses but when you look at the people involved in this and the current economic climate and the percieved risk and down right potential destruction of SIRI stock i find it hard to believe that the same guys who made billions out of their own moxi would be stupid enough to place it all on black 22.
Is it possible that Sirius needs the cash for something other than the debt the other day? Im thinking maybe they see an opportunity somewhere. Im not basing this off of anything concrete but if I am not mistaking XM has a reserve satillite in orbit and Sirius has one on the ground. Maybe it’s too early and not the right time to be thinking about Europe but maybe Sirius sees something in WorldSpace (I’m not sure they would buy them since the image is WorldSpace is “terrorist backed”). At some point Sirius needs to seriously consider that market. WorldSpace is BK and maybe Sirius scoops the satillites cheap? I’m certainly reaching, but like you Brandon I am very confused over where the cash is/went and am hoping Sirius hasn’t burned through it and is planning something strategic.
Brandon,
It appears you have broke away from Tyler and Charles. Now go all the way and Join the Hartlieb group. This is exactly what we are fighting for all what you site in your above piece.
Brandon,
Good article hitting to the point of everyone’s bewilderment…
Bad enough the SP has taken such a beaten, but like you, when you look at what they just price 40% ownership at, investors have a reason for concern.
Nasdaq just approved the company’s audit committee decision to implement Preferred Stock without going to shareholders for a vote (any stock issuance that is or converts to common shares, and is more than a 20% ownership position requires a shareholder vote with some exceptions). This company is looking more and more like a privately held company with every move it makes.
Mel has not kept shareholders in the loop during any of this process. Leaving the common shareholder to ride this thing down to nothing or sell off the positions fearing BK. Now we should all be relieved that we still have some value left of our once hopeful nest eggs. Fourth Q needs to be a very detailed explanation of what’s going on or I fear selling us out on the cheap for the rest of the company is in our future…
From a previous Post:
“Melvin is only interested in making money for his close friends.
This showboating to the last-minute was a feeble attempt at orchestrating a media show starring, you guessed it, Melvin Karmazin.
But, this too failed. One Bloomberg honey actually could not pronounce his last name… she was Oriental.
Nonetheless, Melvin made money for his friend, but not the shareholders.
For this, we are to believe in Melvin? Nah.”
Brandon,
I’m really getting tired of your pro-sirius slant with regards to the merger. Fact is that Sirius caused the escalating cost structure of satellite radio, not XM. XM would have prevailed in the long run with superior OEM relationships (over 60% of the market-I’ll take GM, honda, toyota, hyuandai, nissan, etc over Ford, Chrysler and some low volume luxury brands like mercedes and bmw anyday), better music programming, and better hardware. And please don’t reply that XM would have been bankrupt w/o Sirius or that Sirius has been disproportionately burdened by XM debt. I think Homer, the only poster on either this or the yahoo board that actually knows anything, has provided ample evidence that that is just not true (XM is set with sats, sirius is not, etc)
Your right, XM would have thrived without the competition from Sirius, but that is not what our country and economy is built on. Sirius did what they had to do to overtake them and get their spectrum back that the government decided to split up when they issued licences.
This is stock is very undervalued. Between the assets, spectrum and 20 million subs, it should be much higher.
karma zen: I agree with your comments & I might make some more like them but that doesn’t change the excellent point that Brandon is making here.
It just doesn’t make sense to swallow a terrible deal when you have enought cash to avoid it. What is going on here? 4th. quarter CC had better have some good answers.
1. There is no $ in the banks, essentially. All funding is coming from private hands, like Liberty
2. The company needs to finalize near-term debt rollovers to avoid any ‘going concern’ notice in the upcoming 10K. Having that notice would have triggered defaults on longer-term debt
3. Good question on cash burn. In the Q3 10Q, the accounts payable was huge, they may have paid some outstanding bills and brought the cash available down.
4. They gave an investor update mid-December, with 3 weeks before quarter end, we hope they gave accurate projections, but it appears no one is betting on that
5. Still need to Push out the May debt. Liberty offered to buy $100m of it, if the banks are willing to let SIRI push out the rest. Leaving just the December Ergen-held debt of $220m or so. If the May debt is pushed out, the remaining December debt can likely be paid in cash.
6. It looks like another weekend of negotiations, as they want the May debt situation done before they tell anyone actual Q4 numbers
The cash situation remains odd. We will find out soon enough. I think Mel rolled the dice on the financing after the merger. Frankly there is not a CEO out there who would have taken that deal. In the end it was a bad decision. Anyone who has ever been in a stuation like this and blows it vows to never make that mistake again. I think mel wanted to make sure he bought 30 months to get the thing turned around. He has to get the bank financing rolled over to announce anything. He could not negotiate with the banks until he had the Malone deal done. I hope we see an announcement next week. For the record, Malone did a simular deal with Ted Turner many years ago. Everyone thought Ted was dead. He sold out years later to Time Warner for 7-8 billion. Sirius may have better assets..it certainly has less competition. The qustion is does it have time?
Where is the $380 million dollars that was on the 3Q books? This is the question we need answered NOW!
My guess is its still there.
My guess is they ended year with just 300M because of all the buyouts and XM not being too cash flow friendly in 4thQ.
Mel has to keep some cash on hand. Let’s say he only can get another 250K loan to replace May debt, he may have to pay off the rest in cash to keep Ergen off his ass.
Dec balance of converts will be easy by then.
>>>My guess is they ended year with just 300M because of all the buyouts and XM not being too cash flow friendly in 4thQ.
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Actually, XM has been very CF friendly in Q4. The only reason they didn’t have it in 2007 was because of them buying out several large contracts with cash and a new rampup by GM to a new install level. But prior to that, they were CF positive in each of the prior 2 Q4’s.
With so much being cut by XM during Q4 and the lack of GM/auto sales, I expect their quarterly cashflow numbers to be rather strong.
I fully expect the combined company to have had positive FCF during Q4… I’m still guestimating around $50MM.
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I’ve got to believe that there is more to Mels strategy (He must be thinking a couple of steps ahead). Also, with a 40% stake, there is NO WAY DirecTV will not be working hard with SiriusXM on partnerships and new synergies. Huge opportunities. I’m guessing we will see some announcements in the next 60 days.
There were a lot of mistakes made. My guess with the money on hand is that Sirius/XM burned though a lot of it- but remember, they need some on hand to run the business.
Mel needs time for the synergies to kick in. When the high priced talent/content starts to come up for renewal, Mel will be in a much better position to renegotiate favorable terms which will save this company hundreds of millions of dollars.
If only the economy would pick up- the company and the stock will do much better. I just don’t know when the economy will move- every week it seems like the economy gets worse and worse.
The value (cost) of the XM acquisition was $5.8BB, not $4.6BB. The amount being charged to shareholders is $5.8BB.
Furthermore, Liberty doesn’t “get” 40% of the company for $530MM — Liberty “gets” 40% of the company for ZERO $$. That is because the $530MM has to be repaid.
Liberty is loaning Sirius XM $530MM and is getting $80MM in annual interest payments, for the loan — and getting 40% of the company too. Not only will Liberty get their $530MM back, but they’ll also collect around $200MM in interest payments on the debt purchases – and then have 40% of the common at whatever price it may be, if/when they decide to sell. Current value of that 40% is over $325MM.
As I said after this came out — not a bad ROI for Liberty. Loan a distressed company $530MM — and turn it into over a $1BB in 3 years. With mostly senior loans and preferred shares that are senior to the common. And if Sirius’ Market Cap ever reaches the $6BB level again some time in the next 3 years, then that $530MM will turn into over $3BB.
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I thought that Liberty ONLY gets 40% of the shares IF SIRI asks for the 2nd round of payment? If SIRI does not use that and ends up paying Liberty back before then, Liberty does not get any shares at all and it will strictly be a bridge loan. That is my understanding?
1st qtr cash flow is usually the worst qtr. MLB and NFL payments this qtr are a little over $100 million, plus Sirius tends to reduce payables in the 1st Q, paying off hardware built/sold in the 4th.
The only way Sirius would have enough cash left over from the 4th Q, and still keep a reasonable cash balance was to get MLB and the NFL to defer those 1st Q payments. With MLB there was also a $120 million escrow fund, money just sitting in an account. I’m guessing Sirius tried to get MlB’s agreement to use that money and MLB declined.
Investors have some choices here, keep whining, sell the stock, hold the stock and/or if you still believe the company’s market cap will be $5, 6, 7, 8, 10 billion in the future, whatever, protect yourself from the coming dilution and buy at these prices.
Mel’s screw up came from not raising enough cash and taking the additional $250 million bank loan immediately after the merger, even with those “bad” terms. It wasn’t a screw up taking the financing back in July, it was a screw up not taking more of the same.
Beat me by 2 minutes… its about having enough working capital on the books to not be a “going concern” — which would wreck havoc (worse than it already is) on their credit.
This discussion is much ado about nothing, IMHO.
BTW, where’s the money from cash on hand?
$359MM start of Q4 (from 10Q)
+$50MM FCF during Q4 (opinion)
-$44MM NFL payment in Feb
-$60MM MLB payment in March
-$50MM (negative FCF) during Q1 (est. due to vendor and CAPEX payments)
——————————-
$255MM remaining
If they made the $172MM payment to Ergan for his Feb09 bond holdings, that would leave $83MM on the books.
IMHO, that is not enough working capital to have on the books to operate.
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Based on the Malone deal..they should have about $350 million at he end of the first quarter. Is the bank loan rollover a 50-50 shot or is it a slam dunk? And in your opinion is this the last issue until 20011-2012 assuming they add at least 2 million subs by then.
Nothing is a slam dunk in this credit environment, but you can bet that Sirius, and probably Malone, had some strong assurances from at least $250 million of that loan, that they would roll it over if Dec and Feb were taken care of. Dec and Feb are handled, if that $250 million is rolled.
In the end Mel takes all of our money, books a flight to Israel and lives happily ever after leaving a trail of busted investors and broken dreams.
AmIbankrupt 31 Comments Relmar
see my post the day the deal was announced on 2/17/09
I said Mel took the worst deal for shareholders, but the best for his EGO
He simply got $530 M in LOANS with 15%
BUT, he gave 40% of the company for nearly FREE
Read the the NASDAQ link below is the proof, why he did NOT go to the shareholders for approval?
They have till MID april to ratify the deal or walk away. Is n’t this enough time to get ShareHolders vote???
money.cnn.com/news/new…
He gave 40% of the company for 15% interest loans on $ 530 Milions .. Ergon was ready to fork $ 1.37 / share in Dec 08 = > $4.5 BILLLIONNNNS
Are n’t share holders the owners of the company???
NASDAQ is in bed with MEL and COMPANY
Why give 40% for 530 M + 15% interest??? is Sirius XM worth only < ONE Billion???
Remeber, it was MEL who sold shares @ $ 1.50 the day it was trading at $ 1.80 and brought us down fast 20% Feb 19 10:07 AM | Link | Reply 00
>>>Ergon was ready to fork $ 1.37 / share in Dec 08 = > $4.5 BILLLIONNNNS
Can someone please prove this already — I keep reading claims of Ergen making cash offers but have not seen it backed up anywhere. Unless someone can prove that this is true — then it is a complete fabrication.
And when I say prove, I mean by a credible news organization — not a message board post or someone’s blog where they attribute the claim to anyone.
I just want proof that there was a cash offering — and I’m not going to take someones word for it.
———
He never offered it to the shareholders, so it never happened.
A few things to consider:
1.) From the NY Times:
“The result is that Sirius has a period of time during which it can find an alternative transaction. Here the form 8-K states that:
If, prior to April 15, 2009, we receive an alternative proposal that our Board of Directors concludes in good faith is a Superior Proposal … our Board of Directors may terminate the Investment Agreement in order to transact the Superior Proposal. After April 15, 2009, we may terminate the Investment Agreement if our Board of Directors determines it is in our best interests to do so…
“Superior Proposal” is defined in the Form 8-K as:
a bona fide written alternative proposal that our Board of Directors in good faith determines, after consultation with its legal and financial advisors, would, if accepted, be reasonably capable of being consummated, taking into account legal, financial, regulatory, timing and similar aspects of the proposal and the person making the proposal, and would, if consummated, result in a transaction more favorable to our stockholders from a financial point of view than the transaction contemplated by the Investment Agreement.
So, the parties have created a rather intricate structure that unwinds if a superior proposal is made and accepted before the stock issuance under the investment agreement. If such a proposal is made and accepted, the stock issuance and the second-phase loan do not occur. Liberty is also entitled to a $7 million termination fee. In addition, if a superior bid is successful, Liberty can demand that the first loan be repaid with a $14 million premium.
The end result is that while the bidding for Sirius looks over, it might not be. Sirius has negotiated an out if a superior bid is made before the second loan closes. By putting this announcement in its Form 8-K, Sirius is acting to alert the world.”
2.) We have not heard anything yet regarding the EVERCORE debt restructuring (see # 1 above); I assume there will still be a report forthcoming on or about March 1, 2009.
3.) It is not classification as a “going-concern” that you have to fear. It is the “going concern” OPINION by the auditors that would kill the Malone deal. The company is in fact a “going concern.” An auditor OPINION that calls into question the ability of the company to remain solvent is thus a warning that the company may not be able to continue as a “going concern.” I do not see this as an issue.
4.) 15% interest rate cannot be considered in a vacuum. Go back and look at the 12/18/08 shareholders-meeting slide presentation and you will see that NO NEW CCC PAPER was issued after the collapse of Lehman Brothers. 15% is a reasonable rate in the current environment, given the current credit rating.
5.) “Cash Reserves” (COH) is a component of credit rating. The risk of a further credit downgrade would have to be considered in depleting COH . . . especially looking forward to May bank debt extensions. Mel had to keep a lot of balls in the air at once.
6.) Shareholder vote to approve 40% interest to Malone is NOT required in this instance due to EXIGENT CIRCUMSTANCES doctrine which is more than amply supported by case law.
Shareholders voted to approve an increase in the number of shares for the purpose of dealing with the 2009 debt maturities, why would anybody suggest another vote was required ?
Terry:
Nasdaq MarketPlace Rule 4350(i) requires a shareholder vote when a Nasdaq-listed company issues common stock or securities convertible into common stock with a 20 percent or greater voting power.
But there is an exception that was used in the Bear Stearns and Wachovia deals under a similar New York Stock Exchange rule. A company can forgo this shareholder vote if “the delay in securing stockholder approval would seriously jeopardize the financial viability of the enterprise.”
It’s sounds as though alot of you are not entrepreneurs or owner/operators of your own businesses since you seem to focus heavily on the “non use of Cash on Hand” to retire the Feb. 09 debt of $172MM.
As an owner/operator of 3 companies i understand the use of “OPM “other peoples money” and the conservation of my own liquid cash for “just in case” instances. Furthermore, with the current economic slowdown and the uncertainty of when things are going to get better (GM/Chrysler need another $22BB, Ford $5B loss, Toyota posting 1st yearly loss in it’s 25 yr history, Nissan posting a loss) Isn’t it wise to see “OPM”..
What better name could you have affiliate with your company than John Malone… This adds instant credibility to SIRIXM the likes of Weinkes, Motley Fool, Goldman Sachs can’t PHUCK with or deny.. He is a proven deal maker with a track record of great results…
I would much rather have seen what was done than to take $172MM of our own cash from our $380+MM balance to pay a debt and then things break just a little bit funky and we are in a cash pinch and then have to give up even more our our equity because we are in a less favorable negotiating position than last week…
I haven’t forgotten that i almost lost ALL of my investment!! because BK was a REAL REAL possiblity 96 hours ago… I still down alot $$ but I have a chance… I’m still in the game and so it SIRIXM…
“I’m the King of Rock there is none higher.. Sucka MC’s should call me Sire.. to burn my kingdome you must use fire… I won’t stop rockin’ til i retire”…
RUN DMC
“who’s house, Mel’s house”
thanks, kid with you on that. OPM is it.
The biggest argument against using the cash to retire debt right now is that the bond market is dead and that if funds were needed in the future there would be few options to raise any. Preserving cash for continuing operations must be a priority until the debt markets recover.
Bingo,
Cash is King right now and it will be better over the length of the deal to be paying back highly inflated dollars.
The stimulus package has already started the inflation run.
Of the greater then 100,000,000 million shares that are trading daily my guess is that none of you are buying? Or are you?- someone is!
If you have such valued opinions ,then you should not be afraid to let us know where you sit- and what you have bought lately
It would give your comments some great perspective.
The debt goes with the company. The 40% comes with its share of that debt. Hopefully in a few years they will be able to pay most of that back and the 40% will turn into a real investment toward the future.
I still don’t see how this is as bad as most people think? Malone will make out well with the first part of the loan. Sirius has more time to get the right loans/terms until April. Sirius terminates the second part of the loan, pays its termination/premium fee’s (no share’s issued to Malone). Everyone walks away a winner. Malone makes great money on the short term and stands to make a whole lot more if Sirius can’t refinance. Sirius gets Liberty inline with the company, an immediate cash influx that was needed for Feb debt, and (although bad terms) has the ability to survive through 2009’s debt if nothing can get done.
Obviously Mel knows the 4Q results and probably has a great idea of how 1Q is shaping up. This is EXACTLY why the loan is a two part deal. Sirius has good quarters, refinaces, thanks/pays Malone for the Feb debt and we all sing praises to Mel.
Well, cancel that ticket to Israel….I’m convinced now..
like the way you think dusty-so you are buying?
i dont mean lunch either
these people at the top have kept this stock down and will do so untill a rv split is needed then all the longs get wiped out, that the plan. The best news we had in a long time and we are at 13 and everyone that is writeing about it is still bashing it, think about it
I too, am shocked that nearly half of SiriusXM is only worth a mere $530 million. I can’t believe other companies like Apple or Google wouldn’t have offered a better deal to get such a huge stake in this company.
I know that things will recover, and the stock price will go up, but SiriusXM gave away too much in my opinion. If it had to be done, and that was the best they could get, then so be it. It’s like watching your brother sell his $250k house for $20k. You want to tell him he’s crazy, but if he needs the money and the market sucks, what choice does he have?
dont get your point mrk -are you a seller a buyer or a holder?
im going to start a thread on how sirius xm will buy back shares
That $20K was almost lost due to a foreclousure 🙂
It had been mentioned that Q4 will be announced Feb 23rd-does anyone know if that still holds- and if so will it be announced before or after the bell on that day?
Thank you
I own about 11000 share that were bought as far back as 4 years ago all the way up unitll last week. The point im making is with even good new this stock is being bashed and has been for years. The stock is at 13 today and i feel the powers above are stoping it from riseing. The company in time will RV split and all longs will never be able to get there starting point money back and it looks to me they want to keep it as low as they can or another words under 1 buck. With the new we all had the other day i think it should have been at least 40 50 cents, am i wrong.
MRK,
Why are the powers above stopping it from rising?
In my opinion this stock is snake bitten right now.
The media hates Sirius, and the Street hates Sirius. The only cheerleaders now are, well, us retail longs. The stock is stuck at this level because there are no NEW buyers. One of the reasons for that is because it’s constantly bashed and because it’s a penny stock. It looks like a risky investment in this crappy economy. I’m not sure how we overcome that, but I’m not sure a RS isn’t actually a good start. Heck, I wouldn’t mind them even changing the symbol…
Who knows, if the Q4 numbers are a homerun, it could generate some momentum, but I’ll be shocked if the forward guidance, if there is any given, isn’t significantly reduced from the Q3 guidance.
I am VERY concerned about how the deal went down. There was A HUGE amount of time for Mel to put together a deal with others (Apple, Microsoft, Comcast, At&T, Time Warner Cable, Verizon, etc.) and it got down to the last second, with ONLY the satellite friends, and then he used a special exception with NASDAQ? Just to get around a shareholder vote!! Something smells, and I think it’s Mel.
If he doesn’t care about us, the shareholders, then go private! Go away! Fail. Die. Because if he can legally get away with keeping shareholders out of the legal process – then what is the purpose of the law anyway? I have lost a great deal of money, as a shareholder, and I can not believe his continued disrespect of the shareholders.
I think I am on to Mel’s game… take every penny from it’s investors, and NEVER give them enough say to oust him.
Mr. Ergen, I sure wish you would have tried a bit harder, because he NEEDS to go, and you are the only one saying it.
He didn’t save Sirius, he just saved his penny stealing job.
Mel will take this company down, and the investors are just mute pawns in his theft of our money.
Mel – Please, tell the public, why was no other company involved in the talks, why did it come down to the last second?
and why did you just work with your SatelliteTV friends?
i think there was a lot more risk to ownership a few days back when the stock was at the same price it is today. that makes me think there is a ways for it to go up, but part of me can’t stop thinking the company is doomed. i mean 1 share at its peak is equal to 500 shares today. does anyone know if short interest has materially declined?