SiriusXM – $3 Billion In Share Buybacks?
Jason Bazinet has modeled that SiriusXM will likely spend $3 billion to conduct share buybacks in the coming year. At $3 per share (buybacks really do not work in this exacting way) that would remove 1 billion shares, and impressive dent in a pretty substantial share count. Bazinet also feels that Liberty Media will be patient with its moves in SiriusXM. The reason for patience is pretty simple, Liberty sees huge potential in leveraging SiriusXM and doing share buybacks. Simply stated, why rush when the cow still has more milk to deliver!
Essentially Bazinet feels that a Reverse Morris Trust would be a 2014 event, setting up some 2 years of upside in the stock as the share count dwindles while the free cash flow rises. Yes, the added debt to make these buybacks happen may make some raise an eyebrow, but Liberty is adept at knowing exactly how far to lever a company. Likely the magic number is a 4 to 4.5 to 1 Debt to EBITDA ratio. Given the growth potential of SiriusXM, there should be little issue in servicing the debt.
By selectively participating in share buybacks, Liberty Media can insulate itself (and the percentage of its ownership stake) from dilution events like the 7% convertible notes, options, and warrants, and then see that ownership stake increase if it so desires. All in all, the street is now anticipating quite clearly that share buybacks are in the cards. Now all we have to do is wait for it to happen!
Let the good news roll in! What you say, if the telematics service is a hit with Nissan, I’m thinking more auto companies will want a piece of the action too.
I would rather they bought back shares out of free cash flow, Sirius has a big number in free cash flow now and higher amounts coming. Slow and steady buy backs, but keeping plenty of cash on the balance sheet. What if a Pandora or someone like that gets in trouble, Sirius could scoop them up on the cheap or make a deal for 40% of the company in exchange for a bridge loan. Also, I know it’s 5 years down the road, but what are the plans of replaceing the satellite infastructure when it becomes necessary? Spend all the money today and we would be loaded up on debt then to replace them.
They will use FCF to do buybacks. It will just happen in conjunction with debt. I think the company will keep about $500 million in cash on hand. Leverage at 4 to 1 or 4.5 to 1 is something they should be able to manage well
Great article Spencer! As a premium member I want to thank for your insight in trading in general, but more so for investing in siri. I love the bullet news through out the day!! Thanks again………johnnyblues
i think this is going to be exciting times for siri investors for the upcoming month’s, and even year’s…..i hope mel stay’s….i have been a big fan of his from back when he ran infinity broadcasting….i agree with you spencer from your prior articles,is that he runs a tight ship , but sometimes at the exspense of letting go of good content…..ex..bbc..and letting bill go from willie nelson ‘s channell..,,it was all about money over content….and that is what scares me…..and to let farrell go as well ???….that shows me that radio as we know it, is not dead… you know who scares me??…..bob pittman at clear channell…..i track him very closely his every move!!
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Spence,
What do you think about the timing of Sirius today announcing when they will be reporting 3rd Q results. They usually don’t make the CC timing until about 2 weeks before the event. Also, its a about a week earlier than normal, although that might because they don’t want to do the earnings CC during election week. But as for today’s announcement do you think that was to head off speculation that they may pre-announce subs? Of course we are supposed to find out about Mel’s contract by then also. Not far away.
Regarding the sub announcement, it seems it would have been logical to announce the subs at the same time as the CC announcement today, if they were going to pre-announce. Unless Mel is holding for next weeks Liberty Media conference, I’d guess we don’t get the sub announcement before the CC. Guess we’ll find out soon one way or the other.
it almost sounds illegal- – you take over a company by buying shares — then you take loans out on that company — then with the loans you take out on the company, you buy back shares, thus inflating the value of all your shares. — I mean,, I not complaining , I’ve been riding siri up for a while, but it seems like another house of cards.
let just hope their product remains relevant.