One of my frequent readers sent me an article earlier in the week that talked about the Sirius XM/Liberty Media deal that saved the fledgling satellite radio company from bankruptcy. As a shareholder in the company, believe me when I say that I was watching the newswire with baited breath on Monday night/Tuesday morning waiting for news of an announcement heralding Sirius XM being saved from the financial woes – and after a long while, that news finally came.
As the article linked above puts it:
The money-losing home of Howard Stern, Opie & Anthony and the NFL got a $530 million investment from John Malone’s Liberty Media Corp. that will keep Sirius XM out of bankruptcy. Shares of the New York-based company are soaring.
Malone is demanding a steep price in exchange for bailing out Sirius XM. Liberty will provide a senior secured loan of $280 million which matures in 2012 at an interest rate of 15 percent. Sirius XM, though, may have had little choice but to accept such a high interest rate because it had $171.6 million of its maturing 2 1/2 percent notes due Feb 17. Even with today’s huge run up, Sirius shares are down more than 94 percent over the past year.
In the second phase of the investment, Liberty will provide a $150 million loan and to buy $100 million in loans issued to XM Satellite Radio. The company will then issue Liberty 12.5 million shares of preferred stock which is convertible into 40 percent of the common equity. Malone and Liberty CEO Greg Maffei will join the board of the satellite radio company.
I take issue with the article’s use of “money-losing” as an adjective to describe Sirius XM. If you look at the figures, Sirius was on the brink of making money before it acquired XM and their unbelievable debt load. At this point, though, that doesn’t mean much since there is only one company – Sirius XM.
Since the deal was finalized, many online media sources have commented on it with varying levels of support (or contention). The New York Times’ DealBook blog, for example, looked at the Form 8-K filed for the transaction and proceeded to tear into the particulars of the deal (which are admittedly not the greatest). After the Times posted their review of the 8-K, stock prices for the company began to sink. In terms of real dollars (cents?), the stock price was at 18 cents before the Times posted their review. The stock price is now at 12 cents.
For months I’ve been harping about how Sirius XM is a great niche product for those who have extra long commutes and those who want special content like Howard Stern. The company is also poised for success in the long-term as it has some 20 million subscribers paying generally $13 per month for their service. That’s approximately $260 million per month; over $3 billion per year. Of course there are costs that have to be deducted from that $3 billion figure each year, but over time that built-in revenue base is a gold mine.
I have to wonder, though, if Sirius XM will be able to succeed in the long run with the way the internet media continues to lambaste and destroy it. The Motley Fool has it out for the company and it would appear that the would revel in its failure. And with the way the New York Times’ DealBook blog is listened to by investors, you have to wonder how many more negative reports the company can withstand in the current market.