Sirius XM Radio (SIRI)

The federal government may deny the proposed merger between Sirius and XM, which will re-ignite intense competition between Sirius and XM for subscribers and programming content.

From the article "I'm Still Bearish on Sirius XM" By Tim Beyers, April 6, 2009 http://www.fool.com/investing/high-growth/2009/04/06/im-still-bearish-on-sirius-xm.aspx

"-Beware the debt delusion See, while a $530 million capital infusion supplied by Liberty Media (Nasdaq: LINTA) and accompanying bank lines supplied by a syndicate led by JPMorgan Chase (NYSE: JPM) and UBS (NYSE: UBS) gives the company time, it doesn't solve the long-term problem. Look at the math.

Liberty gets 40% of Sirius XM upon conversion of its preferred stock, which means that the satrad star's 3.9 billion shares outstanding will balloon to 6 billion sometime between now and 2012, when the loan expires. That's a huge problem for existing investors. Dilution has the mathematical effect of demanding ever-higher rates of growth in order to produce meaningful returns.

Here, it's as if patient Sirius XM investors, shivering as they wait in the cold, hoping at last to buy a ticket to see the Hottest New Act in Town, were then told to move to the back of a three-mile-long line.

And that's not even the biggest problem. Sirius XM is now on the hook for paying 15% a year over four years on $530 million in new debt. That's close to $80 million a year. For perspective, consider that Sirius XM paid $137.5 million in cash interest on $3.3 billion in debt during 2008.

Talk about scary math. Debt payments could double before revenue does, which means that future refinancings are virtually guaranteed. Can you imagine the next deal? Liberty's 15% cut could look cheap once a government-funded bout of hyperinflation kicks in."

Auto sales are down. This has been the month after month news item for most auto manufacturers. With the exception of a few bright spots, the entire auto industry is in a slump. With high gas prices, many companies are offering clearance prices on what are now considered gas guzzling trucks and SUVs. Four cylinder cars are now the hot commodity, and even many of these simply are not selling at the needed pace.

For satellite radio sector watchers, the slumping sales in the OEM channel is an undertone that, coupled with the lack of a merger decision, makes many investors have pause in the sector. In an environment where good news seems to always be followed with a pause and then bad news, it is hard for the satellite radio equities to see any momentum.

Many analysts started off 2008 seeing the OEM channel as a driver for satellite radio subscriptions. Most used some base assumptions, projecting subscriber numbers based on a certain level of car sales happening combined with a bigger ramp-up in the rate at which SDARS receivers are installed. Now with half of 2008 gone, and car sales still slumping, there could well be some adjustments in the models that analysts use.

The answer depends on how much weight you put on various metrics. If the debt is the biggest determining factor than the equity has a lot of question marks. If top line growth and cash flow are the metric then there could be an argument that the company has health and a decent outlook. There is no denying that the company is growing, and that many metrics are seeing better year over year comparisons, but we are now dealing with a merged company, and the unknowns that surround the satellite radio sector.

At this point investors have gone from wild merger anticipation to convert disappointment, to debt worry, to overall desperation. I have said many times that investors in this sector are battle fatigued. Now they are not only battle fatigued, but frustrated, angry, and depressed as well.

An A-La-Carte radio will not solve this situation, nor will “Best Of” programming. The only solution in my opinion rests with the quarterly results and solving the debt issue. We are quite a ways away from knowing the Q3 numbers, and even when they come out they will likely include many merger related expenses. The financial company’s are not yet out of the woods, and thus, all we have are question marks and speculation.

The music is playing, but is it an even keeled classical tune, an upbeat jazz song, or the debt refinancing blues? Only time will tell. With the stock now well below a dollar, will the artist soon be camped out in from of Sirius XM Radio’s headquarters only a block away? I do not see the current situation as that dire, but also know that investors are at their limits and beyond. In my opinion, virtually any financing of the Sirius XM debt would be a welcomed relief at this point. It is hard to fathom, but people may even be happy to see a loan at 15%! Would it reverse the stock? That is another “time will tell” question, but again, the battle fatigued investors are at a point where they will be relieved with a break even day.

"TORONTO (AP) -- Moody's Investors Service downgraded its credit rating for Sirius XM Radio Inc. by three notches Tuesday, expecting the company will have to seek a compromise with debt holders next year."

http://biz.yahoo.com/ap/081223/moody_s_rating.html?.v=1

Following the recent headlines regarding Ergens proposed bid for SIRIXM some time last year my question to Mel is why weren't the shareholders notified? If Ergen proposed for one of his units to provide capital to SIRI to meet the debt obligations for 2009 and beyond why wasn’t this communicated to the common stock holder? By definition a common stock represents ownership in a corporation, it provides voting rights. Each common stockholder receives a vote to elect a board member, these board members are supposedly the shareholders representative(what a joke). Stock holders can also vote on company objectives in the form of voting rights. A voting right allows the common stock holder to vote on matters of corporate policy. Doesn’t corporate policy changes once a bid is made on a company? The current strategy implemented by the board must now be reconsidered and the common stock holder should be notified and given the opportunity to collect the new data and decide the future direction of the company. Shouldn’t the common stock holders have been notified of Mr. Ergens proposed bid? Where is the corporate governance? Its nonexistent....SIRIXM's board is no better than the banking sectors boards. It should be the decision of the stockholders whether SIRIXM should be involved in a consolidation with Echostar Corp or Dish Network Corp. Mel where was the stockholders notification of Mr. Ergens proposed bid last year? I was under the impression that I was an owner of the company.....Oh, SIRIXM forgot to sent out the letter explaining that they already took your money during the IPO and have run the company into the ground(not one company but two). Your money is no longer needed and neither is your ownership..... SIRIXM will issue new shares once bankruptcy is completed and a new IPO will be pushed to the public in which you and I will be able to donate additional money to a corporate governance structure that simply does not value the common stockholder. thevoice@voiceup.com/voicedup.blogspot.com

Sirius Satellite Radio - Reducing Estimates at Both Retail and OEM Channels 2008E Revenue From $1.31 bn to $1.22 bn 2008 OEM Net Adds From 1.43 mm to 1.37 mm

Plus due to continued retail weakness and slowing domestic auto market, the subscriber growth outlook has also been pared down by various analysts. ^[1]

SIRI reported mixed 4Q07 results marked by weaker than anticipated ARPU and pre-marketing EBITDA margins, but in-line churn. The increased impact of subscriber mail-in rebates in the quarter led to fully loaded ARPU of $10.05 coming in $0.49 below our estimate. Pre-marketing EBITDA of $52.8 mm came in below our $79.1 mm estimate, implying a 21% margin compared to our 30% expectation for the quarter.

However, roughly $15 mm of the pre-marketing EBITDA shortfall came from catch-up payments related to the increased performance rights royalty license. Excluding the incremental CRB payments, the 4Q07 pre-marketing EBITDA would have been approximately $68 mm.

4Q07 revenue and adjusted EBITDA loss came in at $249.8 mm and $107.2 mm compared to our $263.7 mm and $100.8 mm, respectively. Reported churn of 2.3% came in in-line with our estimate, while 4Q SAC of $90 came in $2 below our estimate, or down 13% from 4Q06. Lower SAC was likely attributed to fewer retail subsidies and commissions due to a higher OEM sub mix in the quarter. SIRI pre-reported 4Q07 subscriber results which showed weak retail growth leading to YE07 subscribers coming in short of our 8.41 mm by roughly 90K. Retail gross additions declined approximately 42% YoY compared to -25% in 4Q06.

Sirius's subscriber addition costs are very high, especially since its operating expenses have been growing since in recent years as Sirius tries to sign premium content to its channels and heavily market its service in order to acquire new subscribers.

The popularity of Apple's iPod and its increasing compatibility within car audio system will prevent Sirius from acquiring new customers looking for digital quality music to play in their automobiles.

Meanwhile, the folks at Slacker have taken the next step in their business by launching a new portable player that is smaller, more capable, and hitting the market in time for the 2008 holiday season. As is typical, Slacker brings a unique flair to their player, and given how awesome their Internet radio service is, fans will gravitate to this new player.

The new player makes Slacker even more competitive with satellite radio as well as iPod, by getting the size and capabilities in their player more in line with consumer expectations. When Slacker gets to the point of a car kit, the race for listeners ears will have a new and viable competitor.

Sirius Satellite Radio traded for quite some time on the potential that satellite radio would be a success. Investors were more apt to accept high costs of establishing the business in hopes for a future reward. Sirius is now transitioning into an equity that investors want to see the results from. This shift in investor perception is a difficult time in any company. not yet profitable, and with the hype dissipated, investors will treat the equity in a more conservative fashion, and demand tangible results to see Sirius as a "value" investment. During this phase in the company, it is not surprising that money waits on the sidelines.

"Sirius XM Radio Inc. has hired advisers to prepare for a possible bankruptcy filing, which could come in days, according to a news report."

http://tech.yahoo.com/news/ap/20090210/ap_on_hi_te/sirius_bankruptcy_1

Following the recent headlines regarding Ergens proposed bid for SIRIXM some time last year my question to Mel is why weren't the shareholders notified? If Ergen proposed for one of his units to provide capital to SIRI to meet the debt obligations for 2009 and beyond why wasn’t this communicated to the common stock holder? By definition a common stock represents ownership in a corporation, it provides voting rights. Each common stockholder receives a vote to elect a board member, these board members are supposedly the shareholders representative(what a joke). Stock holders can also vote on company objectives in the form of voting rights. A voting right allows the common stock holder to vote on matters of corporate policy. Doesn’t corporate policy change once a bid is made on a company? The current strategy implemented by the board must now be reconsidered and the common stock holder should be notified and given the opportunity to collect the new data and decide the future direction of the company. Shouldn’t the common stock holders have been notified of Mr. Ergens proposed bid? Where is the corporate governance? Its nonexistent....SIRIXM's board is no better than the banking sectors boards. It should be the decision of the stockholders whether SIRIXM should be involved in a consolidation with Echostar Corp or Dish Network Corp. Mel where was the stockholders notification of Mr. Ergens proposed bid last year? I was under the impression that I was an owner of the company.....Oh, SIRIXM forgot to send out the letter explaining that they already took your money during the IPO and have run the company into the ground(not one company but two). Your money is no longer needed and neither is your ownership..... SIRIXM will issue new shares once bankruptcy is completed and a new IPO will be pushed to the public in which you and I will be able to donate additional money to a corporate governance structure that simply does not value the common stockholder. thevoice @voicedup.com/voicedup.blogspot.com