by Dennis “Cos” Costa
In a press release today, Sirius XM Radio (NASDAQ:SIRI) announced that it will be providing first quarter 2011 results, on Tuesday, May 3rd. It will also conduct a Conference Call at 8:00 am ET to discuss those results. If the company follows previous procedure, it will release the results approximately one hour before the Conference Call for investors and analysts to digest, present management’s report of highlights of those results during the call, and then follow up with a Q & A to conclude the event.
Investors are eagerly awaiting these results with the stock having had an impressive run over the last six months. From a closing price of $1.32 on October 25th 2010, to Thursday’s April 22nd, 2011 close of $1.93. Investors will be looking for guidance from the company to give basis for the stock’s continued appreciation. This recent 46% stock price appreciation represents a remarkable continuation of the turn-around-story that Sirius XM Radio has become. Since SIRI executed its investment agreement with Liberty Media Corporation (NASDAQ:LCAPA, LINTA, LSTZA) at the end of the first quarter of 2009, the stock has appreciated ~450%, rewarding investors very nicely along the way.
It is this two year old investment agreement with Liberty, which while saving Sirius XM from near bankruptcy, provided Liberty Media a 40% ownership position in the company, that analysts and investors are paying the closest of attention to. Any news out of either company is always closely scrutinized for a hint at direction by either company. Liberty Media announced earlier in the month that on Friday, May 6th, it too will be releasing its 2011 first quarter results. Their conference call will take place at 11:00 am ET, and hosted by Greg Maffei, President & CEO. Liberty’s ownership position is now held by Liberty Radio, LLC, as a subsidiary of Liberty Media Corp, in the form of Preferred B-1 shares, and is where much of investor and analyst speculation will reside in the coming months and quarters.
Liberty’s ownership position as outlined in the agreement, provided Liberty with a proportional amount of Board of Director (BOD) seats to its ownership status. Initially, Liberty only exercised its right by appointing just three directors to Sirius XM’s board. They were –John Malone, Chairman of Liberty Corporation –Greg Maffei, President and CEO of Liberty Media, and –David Flowers, Vice President & Treasurer of Liberty Media. These Directors are titled as Preferred Directors of Sirius XM, and distinguished from Sirius XM’s already existing Common Share Directors. They have the same voting rights as other board members, unless the vote’s context is a conflict of interest.
Understanding the company’s Corporate Governance component is becoming as important as understanding its financial execution. With the two year anniversary of Liberty’s agreement now passed, and increased ownership “stand still” restrictions lifted, many feel that news from the companies will be forthcoming. In particular, Liberty is now allowed to take control of the company by exercising its right to make a full tender offer for all of Sirius XM’s outstanding shares. The only restriction appears to be that the offer price must be higher than the previous day’s close. This has created a moderate amount of speculation regarding Liberty’s longer term intent. Discussion of Will they?, When?, and At what cost? –has stemmed from this restriction being lifted. What impact on Net Operating Losses (NOL’s) has also been a topic for conversation and concern by those following the companies activities.
A recent move by Liberty Radio, LLC to increase the number of its Board seats, has also fueled speculation. In a filing on April 12th, 2011, Liberty Radio, LLC appointed Ms. Vanessa Wittman, EVP & CEO of Marsh & McLennan Companies, Inc. (NYSE:MMC), and Mr. Carl Vogel, a BOD member for Dish Network Corporation (NASDAQ:DISH), to Sirius XM’s BOD. In that filing SIRI reported that;
“Ms. Wittman and Mr. Vogel have been determined by the Nominating and Corporate Governance Committee of our Board of Directors to be Independent Directors withing the meaning of The NASDAQ Marketplace Rules. Ms. Wittman is expected to be appointed to the Audit Committee of our board, and Mr. Vogel is anticipated to be appointed to the Compensation Committee and the Nominating and Corporate Governance Committee of our board.”
In addition to the governance issues and shifting balance of power on the board, Sirius XM has also reported in a filing, the results of its Tender Offer Statement for any and all of the Company’s outstanding 3-1/4% Convertible Notes due October 2011. The company had already reported in its Annal 2010 -10K that it had paid over $94M of these notes off in February, 2011. The estimated balance of the principal sum of these notes was $97.8M as reported on the initial 8-K filing. With the premium offering increased, the company reported participation of $73.97M from holders of the notes by the offer expiration date, which was April 20th, 2011. The premium paid was $1,010 per $1,000, plus accrued and unpaid interest. Many investors have wondered why these “notes” needed to be paid at this time rather than at maturity. While there are savings to be had, speculators have also looked toward covenants contained within these notes for more motivating answers. I look for questions by analysts to get a clearer reason for this action during the CC.
As with other investors, I await eagerly the conference call presentation by management, and their more aggressive growth guidance projection for continue appreciation in the fundamental value of the company’s stock. While I feel the stock is now fairly valued, it is not present condition that future stock price appreciation should be based on, but rather the improving conversion of EBITDA to FCF, and Net Income that will be watched closely. With capital expense moving to a non-issue by the end of 2011, and debt being taken care of until 2013, actualizing a growing cash position to pay future debt, and reclaiming outstanding shares through a stock repurchasing plan, are what most want to hear in solidifying their investment.
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Position: Long SIRI, None in LCAPA, MMC, DISH
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