EchoStar Loves Sirius?

I'm not the only one who's recently turned positive on Sirius XM Radio (Nasdaq: SIRI  ) . Shares of the satellite-radio provider traded as much as 43% higher this morning, after WSJ.com reported that EchoStar (Nasdaq: SATS  ) has been buying gobs of the company's debt.

According to the relentlessly chatty "people familiar with the matter," EchoStar has been buying up chunks of the $174.6 million in debt Sirius is due to repay later this month. Since EchoStar has never fancied itself a gambler, one can assume that the company isn't just looking for a near-term trade here.

So let me ask the question on every speculator's mind this morning: What are you doing here, EchoStar?

A history of space
EchoStar is no stranger to beaming entertainment to subscribers via satellite. The company spun off DISH Network (Nasdaq: DISH  ) , the United States' No. 2 satellite TV provider after DirecTV (NYSE: DTV  ) , last year. Is it cozying up to Sirius to fill the void DISH left behind?

Investors need to be careful here. Until it makes its intentions clear, EchoStar can't be greeted as a liberator. What if it's just gobbling up debt to force the company into bankruptcy, should Sirius prove unable to line up refinancing elsewhere? As a major creditor, EchoStar would have some serious weight in bankruptcy. It might walk away from the rubble with Sirius XM in tow, but common shareholders would likely get hosed.

Things will get interesting if EchoStar buys up debt beyond this month's maturities. $200 million of the $350 million due in May rests in the hands of JPMorgan Chase (NYSE: JPM  ) and UBS AG (NYSE: UBS  ) . As gun-shy banks, they would probably prefer to negotiate with Sirius rather than write down the credit. EchoStar may be their ticket out of that iffy debt.

In cinematic terms, what if EchoStar is There Will Be Blood's Daniel Plainview, buying up tracts of adjacent land to drink Sirius XM's proverbial milkshake?

There WILL be blood
Longs don't like uncertainty, but another group despises it even more: shorts.

There were nearly 220 million shares of Sirius sold short as of mid-January. How many of those investors can afford to take a hit if EchoStar is planning a shareholder-friendly buyout?

If you listen between the gaps of today's frenzied trading in Sirius XM shares, you can actually hear the short squeeze. The bears may be right. Sirius XM may have no choice but to file for bankruptcy later this year. However, now that there's a whiff of at least one potential suitor in the air, do you think the longs who have suffered for so long will just give away their Sirius shares?

On the block
EchoStar can't be the only company with Sirius XM on the brain. If satellite radio is good enough for the DISH family tree, surely it's good enough for the larger DirecTV, right? And while Clear Channel is unlikely to gather the private equity funds necessary to make a play for Sirius, wouldn't terrestrial radio's mortal enemy look interesting on the arm of traditional radio's leader?

While we're talking terrestrial radio, CBS (NYSE: CBS  ) is another company that could do some serious damage in the media space with Sirius XM in its arsenal. With shares of CBS fetching little more than a foot-long Subway sandwich these days, what does the Eye Network have to lose?

In short, even though we still don't know EchoStar's intentions, it's probably not the only company that would make sense as a potential suitor. After months of steady declines, I'm glad to see Sirius XM feeling wanted again.

More news than static on Sirius XM:

Who do you think should buy Sirius XM (if anyone at all)? Post your thoughts below, and I'll be back to discuss your thoughts.

JPMorgan Chase is a Motley Fool Income Investor recommendation. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz subscribes to both XM and Sirius. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (7) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 05, 2009, at 2:50 PM, PTURBED wrote:

    "Motley Fool Stock Advisor"

    Stocks up, I LOVE IT!

    Stocks down, I HATE IT!

    Nothing but clowns with a web site.

  • Report this Comment On February 05, 2009, at 3:04 PM, Siriusbrit wrote:

    Yes, there are many suitors for SiriXM but what they all have to realise is that 50% of the stockholders are faithful Sirius subscribers and if a suitor decides upon an 'unfriendly' takeover' there will be without doubt a mass exodus (min 5-7,000,000) of disgruntled and finacially 'rippedv off' subscribers cancelling! including myself.

    There is a lot riding on how this debt is elliminated, I hope Mel gets it right!

  • Report this Comment On February 05, 2009, at 4:52 PM, ByrneShill wrote:

    Rick's daily SIRI-pump was sponsored by Echostar. At Echostar, we live on the moon. Literraly.

  • Report this Comment On February 05, 2009, at 9:01 PM, draland wrote:

    I cannot believe these blogs are not replete with commentary...........................?

    Clearly a testimony to the amount of ambivalence out there about this stock...and possibly exactly what the silent powers in charge, both at SIRI and SATS want, to keep as many of the 'little players' out as they can.

    Think about it................

  • Report this Comment On February 06, 2009, at 1:42 PM, realguise wrote:

    Re: PTURBED

    I'm beginning to agree with your comment. I don't feel "advised" as much as I do "duped" for actually paying for the advice.

    Re: sdadad

    Brother, I hope you're right. I'm so sick of bankruptcies I could puke, particularly when the business goes on to succeed leaving its original investors in the sewer. Perhaps, I'm a terrible investor but I've been stung by Enron and Worldcom already in the past decade. If "they" screw shareholders, I truly hope there is a mass exodus from which they never recover. Karma.

    Do right by us, Mel!

  • Report this Comment On February 09, 2009, at 9:43 AM, draland wrote:

    Does anyone know about this WSJ article wherein they claim that Mel K. was in talks w/investors last week and he was tallking BK-option ??

    http://online.wsj.com/article/0,,SB123413823508461499,00.htm...

  • Report this Comment On February 14, 2009, at 9:14 AM, IIcx wrote:

    Sirius reported that they could file for chapter 11 as soon as Tuesday. They have also completely diluted the value of their shares.

    Even if they don't go chapter 11, they will have to use a 1:1000 split at some point to get the stock above 15 cents a share. This isn't an attractive long buy unless you need a tax write-off.

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