Malone Gives Sirus XM Some Liberty
Today, that announcement came, and Mel Karmazin remains in control of Sirius thanks to about $530 million worth of funding from Liberty Media in return for a substantial stake in the company.
The deal is not inexpensive, but in this credit environment, what else could be expected. In the first part of the deal Liberty will loan Sirius XM Radio $280 million, with $250 million of that funded today, just in time to pay off the debt owed to Ergen. The interest on the loan will be 15% and gives Sirius XM breathing room until 2012.
Because of the structure of the company, the next step in the process with Liberty involves a loan to XM Satellite Radio (the surviving entity as a result of the merger) of $150 million . In addition, Liberty agreed to offer to purchase up to $100 million of the loans which are outstanding under XM Satellite Radio’s existing credit facilities.
So what is the cost aside from the interest rate? Liberty investments will receive 12.5 million shares of preferred stock which is convertible into 40% of the common stock of Sirius XM Radio. Effectively, Liberty will become the largest shareholder in the company, and win themselves seats on the Board of Directors.
Greg Maffei, president and CEO of Liberty stated, “We are excited to be investing in Sirius XM. We have been impressed with the company, its operations and management team. Sirius XM’s ability to grow subscribers and revenue in a difficult financial and auto market is indicative of how listeners view this as a “must have” service.”
For his part, Sirius XM’s Mel Karmazin said, “This agreement enables Sirius XM to continue to develop the opportunities first outlined in the merger of Sirius and XM. By strengthening our capital structure and enhancing our financial flexibility, this investment allows us to continue providing the great content and innovative programming our subscribers know and love.”
In simple terms, the company has been able to stave off a take-over bid from Ergen as well as secure the funding needed to keep the bankruptcy option at bay. With liquidity in hand, the company can concentrate on bringing about merger synergies, and getting the company to a profitable position. The 2009 debt had been a major overhang on Sirius XM, and became a focal point not only to investors, but the company as well. With the issue resolved, the company can get down to being in the satellite radio business rather than the seeking funding business. This alone is good news for both the street as well as satellite radio consumers.
The Ergen camp has remained quiet so far today. Ergen made a move and in the end he will make a fair amount of money on the deal. However, at this point Ergen will fall short of getting control of Sirius XM Radio. Liberty, has a stake in DirecTV, the main competitor of Ergen.
Position: Long Sirius XM Radio
I am confused. Cramer and a few other reports indictae that this deal is no good for common stock holders and we are essentially going to be wiped out. Please explain.
Nice to hear from you tyler
What does all of this mean to the company near and short term?
The stock today got off to a good start but is up 7 cents as i write this. If the markets main concern was debt as we all though shouldnt this bring the stock back to life?
I know its a bad day on the market but with all the “Major” Debt issues resolved and with SiriusXm being a growth company in this terrible economy id think the company should be able to gain more than 7 cents a share. Im not expecting $1 or anything but you would have at least thought .45 to .50 cents.
Anyways, Im glad the company will continue and i do see this as being a good company and having a higher stock price later in the year and toward next year as well.
Be thankful we are still trading this stock.
I believe there is still a large amt of short position pressure,that with hopefully good news Feb 23 of Q4 results,things including the stock price will respond.
I can remember Intel releasing quarterly earnings that blew away the market about a yr ago and was announced after the bell-The stock fell in a spiral for two days after that and suddenly bounced dramatically.There was no sentiment to sell on good news with that stock either.
15% & a dilution!!!!! IMO this is a terrible deal!
I agree it does stink but considering the other option, I guess we got what we had to take.
Although I would have liked (as everyone else would have liked) this stock to immediately spike to a dollar, the smaller increase so far today is good considering the market is down 3-1/2% and GM is down about 13% today. Also, the news of a “40% stake” might also scare some people. Add to this the fact that a lot of people bought this stock recently as low as 5-1/2 cents, and there must be a lot of profit taking going on right now. So, all in all, I’m happy – also relieved that we live to fight another day, as they say!
I doubt that we will see more than a 25 cents close, if that. It is not that I am not optimistic about the SIRI’s long term prospect, I am. The problem is a lot of traders purchased SIRI at < 11 cents and they can double their money and move on at this price. We need to work through the “traders” before we see a gradual increase
Oh boy, the possibilities of Sirius and Direct TV. It will take the markets a while to digest. I’ve noticed lately that the markets are like an adolescent child who’s had too much candy.
Anyway, cross-advertising, programming… backseat tv. Boo-Yah!
From the 8-K issued today (link: Note that Liberty cannot acquire more than 49.9 of outstanding common stock for 3 years and that they are being issued preferred stock which is later transferrable into 40% of the outstanding common shares existing at the time of such conversion. So, if I read this correctly this 40% would not be the full amount of all of the shares that are currently authorized but not issued – it would be 40% of the outstanding shares at the time of conversion. So, that would mean that it would be in Sirius XM’s best interest not to issue additional shares at this time. Here is a quote from Sirius XM’s 8-k:
The Purchaser has agreed not to acquire more than 49.9% of our outstanding common stock for three years. Certain of the standstill restrictions will cease to apply after two years.
Phase Two: The Preferred Stock
The preferred stock will be issued concurrently with the funding under the XM Credit Agreement described below. The rights, preferences and privileges of the preferred stock will be set forth in a Certificate of Designations to be filed with the Secretary of State of the State of Delaware. The preferred stock is convertible at any time, at the option of the holder, into shares of our common stock equal to 40% of our outstanding common stock (after giving effect to such conversion).
The holders of the preferred stock are entitled to appoint a proportionate number of our board of directors based on their ownership levels from time to time. The Certificate of Designations also provides that so long as the . . .
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant
The information set forth above in Item 1.01 is hereby incorporated by reference into this Item 2.03.
Item 3.02 Unregistered Sales of Equity Securities
Pursuant to the Investment Agreement, we have agreed to issue 12,500,000 shares of the preferred stock in consideration for the investments described herein. The preferred stock was offered to the Purchaser in an offering exempt from the Securities Act registration requirements under Section 4(2) of the Securities Act of 1933. Upon election of the holders of such preferred stock, the shares of the preferred stock will be convertible into a number of shares of our common stock determined pursuant to the conversion rate set forth in the Certificate of Designations.
As of February 13, 2009, 3,793,193,708 shares of our common stock were outstanding.
How much is 1 share of preferred stock worth? And will Liberty want to buy into the common after a reverse-split? Thus hurting the Common once again. Or are they better just to hold the preferred and do nothing for a couple years? Thanks.
It would seem that having a partner that is “friendly” and in a related business; i.e. Satellite TV more than offsets a painful dilution and 15% interest. There are even more “synergies” possible with John Malone as a partner. He is not going to let his shares go to waste or future BK. One must keep the vision alive here. Controlling debt obligations till 2012, in my opinion is huge.
Clearly the weight of the XM debt we inherited because of the merger is preventing this company to gain traction. I beleive more cost-cutting and keeping Karmazin at the helm will ultimately be good for the bottom line.
My big question, as a long shareholder who treats this as an investment, is the Reverse-split issue. I am long 14000 with an average of $1.80. Say we are looking at 40% dilution(6.5 billion shares outstanding?) What should we do? Average down further before the reverse-split, or wait and buy after the split? Should we wait and see if they delay RS action till the deadline of the Nasdaq de-listing extension? Or should we see if Mel exercises his wizardry further and sees unexpected growth and positive EBITDA in ’09 etc.? Is share buyback remotely possible with positive cash-flow, or should the common shareholder still expect the worst, per usual.
Any knowledgeable opinions would be much appreciated.
Those are all good questions. I think it could go either way from here. I’m most worried about the larger economy. I don’t see SIRI growing enough unless car sales begin to improve and the economy begins to shows signs of stabilization. However, if these things do happen sooner rather than later, I think SIRI’s growth-rate, balance sheet and PPS will all benefit big-time. The potential for positive catalysts are definitely there.
Actually, from what I read in the 8-k, Liberty will get more than 40% of the outstanding common shares at the time of conversion from their preferred stock to the common shares. The reason I think this is so is because of the wording “the preferred stock will be convertible into 40% of our outstanding shares of common stock (after giving effect to such conversion)”. The parenthetical “(after giving effect to such conversion)”, as I read it, means that they first add in the extra shares, and then do the 40% canculation. (link: Here is the direct quote from the 8-k:
On February 17, 2009, we entered into an Investment Agreement (the “Investment Agreement”) with Liberty Radio, LLC (the “Purchaser”), an indirect wholly-owned subsidiary of Liberty Media Corporation. Pursuant to the Investment Agreement, we agreed to issue to the Purchaser 12,500,000 shares of convertible preferred stock with a liquidation preference of $0.001 per share in partial consideration for the loan investments described herein.
Upon expiration of the applicable waiting period under the Hart-Scott-Rodino Act, the preferred stock will be convertible into 40% of our outstanding shares of common stock (after giving effect to such conversion). Issuance of the preferred stock is subject to the satisfaction of certain conditions, including the conditions to funding under the XM Credit Agreement described below.