GM And Chrysler In Merger Talks
If we all thought the merger process of Sirius and XM brought interesting times, imagine all of the comments that will come if Chrysler and GM pull the trigger on a rumored merger/acquisition! One thing that may be certain is that the auto companies can cite a “failing business” as a reason that such a deal should be approved.
For satellite radio, the deal could be very interesting. The biggest XM OEM partner joining up with the biggest Sirius OEM partner. As sector followers are aware, GM has an exclusive deal with XM, and Chrysler with Sirius. Interestingly, the GM deal has clauses that speak to what could transpire if a GM brand were to install Sirius radios, and that may bring about discussion of getting a fully interoperable radio into the OEM channel earlier than may otherwise have happened.
Now, to be clear, the satellite radio deals could play themselves out as currently structured. However, an automotive marriage could also mean that Sirius XM Radio will get a chance at renegotiating the current deals. It is widely known that the GM deal is expensive for satellite radio, and more than one analyst had made reference to that fact. Thus, it would benefit Sirius XM Radio to at least try to better their current deals should GM and Chrysler hook up.
Cerberus Capital owns 80.1% of Chrysler, and 51% of GMAC (the financing arm of GM). One proposal would have Cerberus trading their stake in Chrysler to GM for the remaining 49% of GMAC. It is an interesting proposal. Chrysler sales are way down, and credit markets are tight. The deal would solidify GM’s position as a sales leader. Toyota has been chipping away at GM for a few years, and sometimes has been known to outsell the biggest U.S. car maker.
If there was ever a time to propose such a deal, it is now, and it may just have a decent shot at passing regulatory muster. The markets next week will be interesting to watch as the government takes a stake in big banks, and big automakers try to find solutions to their sales woes.
Position – Long SIRI, No Position GM
I’m curious about when all of the OEM contracts expire and what the specifics of those contracts are. Are those made public? Does anyone know where I might find this information? It seems that Sirius/XM coud get much better terms now after their merger, as they are no longer in heated competition with each other. I’m curious about how soon these contracts could be renegotiated and add to the bottom line…
I’m also curious about some of the other major content contracts and when they expire.
How could I gather this info?
Demain…..
There are various expiration dates, but they are avaialbe in the anual reports of the companies.
Terms of deals are not disclosed, but certain aspects of the deals are known.
I’m pretty sure NFL expires 2010, Stern 2011.
I need to look into the others myself, but may be in the 10Q’s.
News yesterday was that GM has enough reserves to last only another 12 months +/-. Ford’s reserves stretch two years +/-. I’m an IT guy (PM … project management officer) but it makes me ill to see tech stocks make formerly mightly auto industry stocks look less attractive. My family has always had either a Chevy or Ford in the driveway. With OEMs including our very at risk domestics in dire straights, and since Sirius XM has a lock on OEMs, perhaps Mel could gain traction for SIRI by offering GM, Ford, and Chrysler some “PSA” time to reciprocate for the fact that the OEMs are critical to Mel and company’s success. Just thinking out loud and IMHO.
It’s not going to happen. The Democrats don’t like mergers. If anything they will try and get the Government to take GMAC off their hands by threatening plant closings.
High gas prices, followed my bad loans for housing and now a credit crunch. A perfect storm…for bankruptcy.
Attention: Tyler and/or Brandon
QUESTION
Can XM FILE BANKRUPTCY ON ITS OWN.. seeing as it’s a subsidiary of sirius?
SHope,
There is only 1 company now and that is Sirius XM Radio, inc.
SXM..it states in merger agreement that XM is a subsidiary wholly owned by sirius
I don’t know how else to communicate such an important point that XM is a subsidiary of parent Sirius (Sirius XM is a name change only) and therefore can go bankrupt independent of Sirius…
“Sirius may be unwilling to contribute or loan us capital to support our operations or
unable to do so under the terms of its existing or future debt obligations. Investors in the Notes should not
assume that Sirius will contribute or loan us additional capital to satisfy our liquidity requirements following
the merger. To the extent our remaining funds following the Refinancing Transactions are insufficient to
support our ongoing capital requirements, we would be required to seek additional financing, which may not
be available on favorable terms or at all. Such additional financing would likely be obtained from the sale of
additional debt securities, obtaining the release of funds held in escrow in connection with our MLB
arrangement or other sources. If we are unable to secure additional financing, our business and results of
operations may be adversely affected. In addition, we will be required to maintain a minimum cash balance of
$75.0 million under our revolving credit facility. If our cash balance following the Refinancing Transactions
falls below $75.0 million, we would need to obtain a waiver from our bank lenders to avoid a default. No
assurance can be given that we would be able to obtain such a waiver or otherwise avoid a default under our
revolving credit facility.
Following the Refinancing Transactions, we will have a substantial amount of debt maturing in 2009,
including our $250 million revolving credit facility and $100 million term loan, each of which matures in May
2009, $400 million aggregate principal amount of 1.75% Notes, and $33.2 million aggregate principal amount
of 10% Senior Secured Discount Convertible Notes due in December 2009 (“Discount Notes”). Moreover,
Sirius has approximately $300 million of 21?2% Convertible Notes that mature in February 2009, which Sirius
may need to refinance. As a result of these debt maturities, our cash flows from operating activities will not
be sufficient, and the cash flows of Sirius may not be sufficient, to fund projected cash needs in 2009. We and
Sirius may not be able to access additional sources of refinancing on similar terms or pricing as those that are
currently in place, or at all, or otherwise obtain other sources of funding. An inability to access additional
sources of liquidity to fund cash needs in 2009 or thereafter or to refinance or otherwise fund the repayment
of maturing debt instruments could adversely affect the growth, financial condition, and results of operations
of both XM and Sirius, and their ability to make payments on their debt, and could force either or both
companies to seek the protection of the bankruptcy laws, which could materially adversely impact their ability
to operate their business and to make payments under their debt instruments, including the Notes offered
hereby.”
It is a way for Sirius to claim bankruptcy for the subsidiary. XM can work to refinance things with creditors while Sirius continues forward towards repaying their debt. Not sure I like the approach, but it may be another avenue if there are financing problems.
There are still shares of XM outstanding, however Sirius owns them all. It is “wholly-owned subsidiary” of Sirius XM Inc. Which means that Sirius XM owns all of the shares in the company. XM has its own books, with its own debt and its own assets. The debt is secured against its assets.
…and yes, parent companies can and do bankrupt subsidiary companies, if need be. Yes it does hurt the parent company some, but the parent company does not need to declare bankrutpcy if the subsidiary goes under.
That said, I do not believe that XM is any closer to needing to declare bankruptcy than the parent company. The Sirius debt is the most pressing, as it matures first, in 5 months — while the first portion of XM debt expires in 8 months. Furthermore, the XM debt is not maturing bonds, but rather expiring term loans with banks. It would be easier to extend the terms of the bank loans than refiancing the maturing bonds. So I believe in terms of refinancing near-term debt — XM as a subsidiary is a bit better off than the parent company, when looking at it this way.
What are your thoughts on Joe Clayton joining Echostar’s board? Could this be a future Echostar buyout?
XM is, like was stated a wholly owned subsidiary of a holding company. The holding company merged Sirius and XM, and XM was the surviving entity.
While there is one company, there is still a set of books for XM, and existing contracts prior to the merger still are enforced.
To “bankrupt” XM would mean to bankrupt the satellite radio operations.
The GM credit facility is only available to XM, and can only be used to “pay” GM. The Loral credit facility is only available to Sirius and can only be used to finance satellite build-out
Tyler
Thanks for your response ..so I gather this is not a possibility.
What’s this all about???
eochampion.com CEO, Owner Michael Rotkin purchased several thousand shares at the market today in a down slope DOW
(1888PressRelease) October 12, 2008 – Michael Rotkin is a long time stock investor and Internet Guru, which has been sidelined till today after his purchase.
I bought Sirius today at 45.3 cents a share, which is a steal. The company has the rights to satellites to provide radio and other things I believe Sirius will with my knowledge of the future” says Michael Rotkin
Michael Rotkin predicts that Google or Yahoo or a like company will want to take over Sirius and its members or work a advertising deal, states Michael Rotkin a non Stock professional, only ” Internet Marketing Professional” .
This information is directly from a opinion of Michael Rotkin CEO of Seochampion.com and domain assets
.
Here are some comments from Mel during the last earnings conference call regarding the OEM contracts….
Tony Wible – Citigroup
Mel, I was hoping you could comment on what your thoughts are on the big three automakers, and I never really considered there to be an opportunity to redo those revenue shares but in the current environment that they are facing, do you see any opportunity to have a lower revenue share in exchange for a smaller up-front payment? And is that something that you would even be open to?
Mel Karmazin
Let me just talk about just our agreements with all of the automakers. There are long-term agreements in place. We believe that those long-term agreements enable us to have a contribution margin, as David points out, of over 70%. We think that at Sirius, we believe that those deals are very good deals for our shareholders and our intent is to obviously honor those deals because they are good deals, but to continue to work with our partners on opportunities that will exist for the combined company going forward.
We also prior to the merger did not have an opportunity to review any of the XM agreements, so we closed the merger 10 days ago and David and I were down in Washington the next day and clearly we reviewed a couple of those significant contracts. The XM agreement today with General Motors is one that is set to expire in a few years. It would be appropriate to have discussions about extending the relationship with General Motors. I called Rick Wagner last week and told him that we would be in touch with his team very quickly about talking about what we would do together going forward. He is very committed to satellite radio. We are very committed to General Motors and we look forward to some time in the near future announcing a new long-term agreement with General Motors — you know, what the terms might be, I’m not going to comment on or speculate but we will communicate with you about that General Motors agreement at the appropriate time.
Michael Rotkin is an Internet Marketing Expert since the age of 16 years old in 1994 as a junior in high-school, buying and selling products online creating links. Michael Rotkin was mentored by a “1995-2005” algorithm specialist during 2000-2006 , which knew the first 48+ parts of the algorithm very well, some to this day are not understood by 95% of the top 5000 Companies in the Dow and Nasdaq!
Mel Karmazin
All of agreements provide for successors so that you should assume that contractually, whoever were to acquire a company in that hypothetical scenario would acquire the contract. But you should also understand now more importantly, every car company has committed to putting in satellite radio and every single company is increasing penetration, right? No one is going the other way. So satellite radio is very important. If in fact there were a new car company today, let’s assume somebody decided it was a great business and that we really want to start a new car company, they would come to visit with us because they too would want to put satellite radio in the cars, make that driving experience better. Even though there is a lot of competition for audio entertainment but satellite radio is still one of the most important ones and that car company is going to want to have some form of revenue share and obviously, we would be in a position if there weren’t a contract of probably having an even stronger position to deal with that new company. But I don’t see that happening and I see, if in fact there was some division sold that it would go with — the contract would go. You saw what happened when Daimler sold Chrysler. All of those agreements were in place and nothing changed.
Mel Karmazin
Our OEM subscriber base grew 53% in the last year and has tripled in the last two years. Along with that phenomenal growth comes a higher mix of bundled plans and ultimately, as most of you know, the non-conversions from those plans show up in our total churn rate. Our all-in churn rate of 2.8% in the quarter simply reflects this effect. Most importantly, we continue to expect self-paid churn to remain in the 1.6% to 1.8% range.
…satellite radio will continue to be important to the auto-makers, regardless of their individual company issues, primarily because we are a source of revenue and an important cool factor to help them sell cars. We expect the production penetration rate to continue to climb regardless of how many cars are produced.
But let’s take the hypothetical auto production scenario of only 12 million cars sold in North America. That’s the lowest number that we’ve seen anybody forecast for this year. Assuming satellite radio is installed in approximately 50% of those, Sirius’ penetration rate currently is slightly higher than XM’s but let’s use 50% for both. That is 6 million cars equipped with satellite radio will leave the factory. And then assume a conversion rate that’s approximately 50%. That’s slightly higher than Sirius today and slightly lower than XM today, but if you take 50%, that gets you 3 million new subscribers to satellite radio in a horrible auto production scenario. And then use the ARPU of about $10 a month, you get to $120 per subscriber, which means we would be getting over $350 million in new revenue annually just using those very tough assumptions.
Mel Karmazin
…the long-term growth potential for satellite radio remains very strong, with over 200 million cars on the road, over 100 million households, and a large market opportunity for wearable products.
Today, after decades of growth, roughly 90% of homes are paying for television service. Today, satellite radio serves less than 20% of households after only six years of service, so we see a larger market opportunity ahead.
The fact that all auto makers continue to embrace satellite radio is expected to lead to a continued increase in production penetration of satellite radio into new car production. Although any slow-down in auto production could impact us, the increase in the production penetration rate is very good for the long-term business model of satellite radio.
What are your thoughts on Joe Clayton joining Echostar’s board? Could this be a future Echostar buyout?
Was this a question that does not meet your criteria of questions asked on this board?
Does this question not stimulate your thought process? If you do not know, Joe Clayton was the CEO of Sirius before Karmazin. Joe Clayton has now joined Echostar’s board. To save you time, below is info about Echostar:
As an operating entity of the publicly traded EchoStar Corporation (Nasdaq: SATS), EchoStar Technologies L.L.C. spans 25 years of delivering innovations in TV entertainment, products, and end-to-end systems. EchoStar provides valuable service to satellite, IPTV, cable, terrestrial, and consumer electronics markets worldwide by combining engineering, supply chain, manufacturing, and service into one company. With over 1,600 professional employees worldwide, EchoStar is dedicated to providing superior service to our customers in creative and cooperative development efforts. As a result of our extensive experience with set-top boxes and end-to-end systems, we are able to provide our customers with competitive business strategies, practices, and reduced product and operational costs.
EchoStar is headquartered in Englewood, Colorado, with operations in Foster City, California; Atlanta, Georgia; Steeton, UK; Almelo, Holland; Madrid, Spain; and Kharkov, Ukraine.
Any thoughts?
Four hours ago in the New York Times: GM to seek merger with Ford before Chrysler.
http://www.nytimes.com/2008/10.....38;ei=5087
Just kidding. Ford broke off the idea. But makes for interesting reading and reminds us that anything can happen, and a lot of it behind the scenes….
SiriusXM Investor….
I thought your question was directed at someone else.
My thoughts on Joe Claytons new position are pretty simple.
He got a board position on a company and board that has been very friendly to him over the years. I do not see anything big coming out of this that involves Sirius and XM
I said it before and I’ll say it again “IN MEL I TRUST” Mel is a very smart man and he will not let us down (or himself for that matter). When he get’s this quite you know something is cooking..Just hang on for a wild ride.
LONG
Wishing everyone an up tick monday..let’s hope sirixm continues upward and onward!!
Cheers to all SIRI shorts getting the squeeze today.