Concern over Equity Issues in Satellite Radio - Goldman
[Updated below] In a note published Thursday, Goldman Sachs analyst Mark Weinke is not as concerned with debt refinancing as with possible dilution that he feels may be required later this year. In the note, Weinke states, “Our analysis of projected cash flows concludes both XM (XMSR) & Sirius (SIRI) can get through 2008, but maybe not comfortably, given XM’s funding of the $120 million MLB escrow last night, and pending ’09 maturities.”
The analyst feels that there is a tangible chance that the companies will need to raise between $500 million and $1 billion on top of the refinancing of XM’s putable debt.
Clearly the possibility exists that the companies will have to raise additional cash. Integrating the merged company will have its challenges, and even with efficiencies made in management, the savings do not happen right away. Whether more readily available synergies such as sales and marketing savings can help weather the storm is not clear. Last year Sirius and XM were able to put together decent second halves, and this may enable them to get through without issuance of new shares.
The issue boils down to where and when people see profits and free cash flow for these companies. If additional shares need to be issued, is this the last time that this type of activity is needed? Any analysis requires some speculation. Goldman, who has been bullish, is the only analyst thus far to pose a question of a need for additional shares.
For everyone, a major challenge is trying to build models on these companies without any guidance from them. It leaves a lot to the imagination of the analyst, and that makes projections problematic. Should investors be concerned with the possibility of a share dilution? Sure, but they need to understand the assumptions being made that lead down that path.
UPDATE - XM in their latest 8K regarding their MLB escrow has stated that they will not need additional funds and are fully funded.
“As previously disclosed, provided that we meet the revenue, expense and cash flow projections of our current business plan, we expect to be fully funded and not need additional liquidity to continue operations beyond our existing assets, credit facilities and cash generated by operations; our current business plan is based on estimates regarding expected future costs, expected future revenue and assumes the refinancing or renegotiating of certain of our obligations as they become due, including the maturity of our existing credit facilities and $400 million of convertible notes in 2009 and the MLB escrow arrangement. Our costs may exceed or our revenues may fall short of our estimates, our estimates may change, and future developments may affect our estimates. Any of these factors may increase our need for funds, which would require us to seek additional (including replacement) financing, which financing may not be available on favorable terms or at all, to continue implementing our current business plan. In addition, we may seek additional financing, such as the sale of additional equity and debt securities, to undertake initiatives not contemplated by our current business plan or for other business reasons, or seek to refinance or renegotiate certain of our other obligations.”
Position - Long Sirius, Long XM
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This article has 46 comments:
A typo indeed. I have corrected it on Sirius Buzz. Great eye.
The FCC would really look stupid denying the merger and they know it.
If there is no absurd conditions attached with the merger,people say SIRI will probably see 4.00 $to 5.00$.
Why not 7.00$ to 8.00$,if XMRS is anywhere between 11.00 and 12.00.
I appreciate the critique. If you are not aware, Sirius Buzz is not my full time career path, and as such, I am sometimes pressed for time to get things published in an expedient manner. I try to do a quick proof when I am pressed for time, and sometimes things slip by. All I can say is that I try to make corrections as quickly as possible if there is an error.
In many cases, some of the news I publish is something that people do not seem to get anywhere else, and it is often time sensitive.
While I appreciate having readers, and try to put a quality product together, I simply do not generate enough revenue from the site to even justify the time that I do spend on it.
Having errors is not an enjoyable thing, and I wish I could meet everyone's high standards while still juggling the everyday things that I have to accomplish.
I am sorry that you, and perhaps others are disappointed.
Tyler
I would be the last one to criticize someone else for typos. All one has to do is look at some of my post.
You do a great job, thanks.
No problem at all. If there is an error, I like to get it corrected ASAP, and do not mind someone letting me know about the error. My coment was in answer to Wulance.
Sirius Buzz will always be the first place to have the articles because it is my site. Seeking Alpha picks up stories only after they have already been published on Sirius Buzz. Sometimes SA grabs them quickly, other times it is the next day. I would say that SA picks up about 20% of what I write, and most of that comes from articles under the "investors" tab on Sirius Buzz. If you want to land on the investors section of Sirius Buzz simply type in satellitestandard.com
I will and do thank you for your service x 2, but have to wonder what went horribly wrong with your role as a citizen after your service ended. Serving in the military is not the end, if your fortunate, but should be the beginning of your taking responsibility for your life and the memory of your "Brothers" lives. I'm sorry but I will not participate in this line of conversation with you again. Find a better way to vent your frustration with this government that you, as I said before, are a part of...
Thanks for the comment. Glad you like the radio show. I may do another conf. call again sometime.
When I scheduled the show, I must have reset a field which wound up limiting the show to 15 minutes. I improvised with a conference call after the show. the show went well even though it was abbreviated, and the conference call was pretty cool in that interaction was much moire free flowing. I will do another conference call at some point. Perhaps next week.
Thanks for the positive comments
K. Martins announcements of when he thinks this deal is going to get done and poor market share performance by XM. I've got to say that I believe that Martin is soon to suffer a broken clock reality, even he can right twice a day. In his case maybe twice a year.
When I first invested Sirius, I saw it as a late comer with a better marketing strategy, and good content. Who could hate the Blue Dog? Retail was an area I thought the company would excel in, while waiting for the OEM channel to mature, and it did. Then the merger announcement, the FCC, and the retail market's bottom fell out, over time, and getting worse.
I still have tremendous optimism in what the potential is for the merged company, but am extremely disappointed in the stall in growth that this decision to merge has created. This is an unexpected hiccup in this company's growth strategy, brought on by the competition, terrestrial radio (NAB), that without the merger, would not even have a playing field. As a business decision, this merger's wisdom, will be decided in the future. In the mean time I am still concerned about missed opportunities in the Fall for both of these companies, or the merged company, if the delay goes on.
Just some food for thought from a still optimistic, but nervous investor.....
On a different note, I enjoyed the discussion of ARPU, and your insight into the numbers. I don't think yoyoYo wanted to read the details of the SEC filing, which clearly educated me on how, at least for Sirius, net advertising revenue is considered a subscription or unit based revenue. That's a detail that I don't believe most people understand or even it's potential impact on ARPU. I think that as small as that revenue number is now, that it represents and realized opportunity for the future for both companies, or the merged entity. I do think yoyoYo's point relating to "contra revenues" as opposed to expenses was relevant also to the ARPU discussion, ie, deferred revenue for parking lot subscriptions is not an expense but a contra revenue, rebates to customers are not expenses but contra revenues, and so on. As far as the rest of the debate, I wasn't sure where it was all going or whether or not it was going to end.
sorry folks...
NOW ONE DAY MAYBE THE FCC CAN GET IT RIGHT AND APPROVE THE MERGER. I AGREE IF THEY WERE NOT GOING TO APPROVE THE MERGER IT WOULD HAVE BEEN SAID ALREADY AND I DONT THINK ANY CONDITIONS PLACED ON THE MERGER WILL STOP SIRIUS AND XM FROM MERGING. I THINK MEL IS JUST PLAYING HIS CARDS AS A PLAN OF DECEPTION TO PREVENT OVER BEARING CONDITIONS PUT ON THE MERGER FROM THE FCC. I REMAIN $5.00 ON FCC APPROVAL.