I’m a big fan of satellite radio. I have XM Radio in my car, and right now, at my desk as I’m writing these words, I’m listening to Frank Caliendo on XM's Laugh USA on channel 151.
So I was very excited to hear last year that Sirius Radio and XM were going to merge. Subsequently, I spent many a happy Sunday afternoon listening to my beloved Patriots on Sirius’ football channel while raking the leaves, working in my garage, or just playing catch with my boys on a glorious autumn afternoon.
Now, however, it looks like Sirius XM is in serious trouble. This after the news that shares of Sirius XM Radio dropped by 30% after an analyst’s report came out that questioned the satellite radio provider's ability to meet its upcoming debt payments and suggested that Sirius XM could call out for bankruptcy protection.
It’s not like the share were worth much anyway. Sirius XM had been trading at about 11 cents per share prior to the report, and is now trading at eight cents per share today (Wednesday). But Reuters points out that individual shareholders won’t be the only ones holding the bag if and when Sirius XM goes under. “Bankruptcy could put pressure on Charles Ergen's EchoStar Corp., which reportedly owns a substantial amount of Sirius XM debt,” says Reuters.
According to the wire service, Sirius has $175 million of convertible notes maturing on February 17, $350 million of secured bank debt due in May 2009, and $433 million in convertible notes due December. With so many people on Wall Street questioning whether Sirius XM can meet that debt, you have to wonder if the satellite pioneer is going to come out of this alive.
"Sirius's options have dwindled," said Stanford Group analyst Frederick Moran. "This first refinancing hurdle, while only a small percentage of the company's debt, comes at a very difficult time relative to the credit market."
Ironically, last week Ergen thought he had a deal to takeover the complete operations of Sirius XM. But XM chief Mel Karmazin now has second thoughts about signing anything with EchoStar. Does Karmazan really think that Chapter 11 is his best deal? Or, is he playing Echostar like a drum, hoping to beat a better deal out of it by threatening to go into bankruptcy?
Either way, shareholders lose. As Tech Ticker points out today, Sirius XM has two options . . .
--Ergen and Karmazin cut a deal, injecting some cash into Sirius and converting its remaining $500 million-plus into equity. Common shareholders get diluted to virtually nothing.
--Sirius goes into Chapter 11 bankruptcy. Common shareholders are wiped out.
Then there’s the Howard Stern factor. Sirius’ number one draw is the shock jock DJ, and Stern reportedly (heck, he says it on the air) will walk if his contract has to be negotiated downward. Major league baseball and the NFL, which also have deals with Sirius, could follow suit. That would drives subscriptions even lower, making Sirius XM the business equivalent of a picked-over water buffalo on the African savannah.
Already, Sirius XM stockholders are in an uproar. "I'll lose $1 million," says Michael Hartleib, a longtime activist shareholder, to Business Week. "They completely destroyed a perfectly viable company."
My thoughts exactly.