Sirius XM Radio (Nasdaq: SIRI) got what it wanted yesterday. Shareholders approved a pair of measures that give the company the flexibility to issue as many as 3.5 billion more shares and declare a reverse stock split.
Is it too much? Is it enough?
The satellite radio giant needs dinero. A little over $1 billion of its $3.4 billion in debt is due next year, and the company's creditors have every reason to be nervous. Sirius is growing and sticking to its projection of generating positive adjusted cash flow next year, but the weak economy and tight credit markets won't make it easy for the company to get through 2009 in one piece.
Unfortunately, few things seem to be going Sirius XM's way these days. When the company filed the share count widening and reverse split initiatives with the SEC two months ago, its stock was trading at $0.39 a share.
Under the clearly hypothetical case that Sirius could pull off a 3.5 billion-share secondary offering at that price, it would be able to raise more than $1.3 billion. That would be enough to clear all three refinancing hurdles in 2009. The move would also assure that the $300 million that the company is projecting in adjusted EBITDA next year gets some breathing room from the "I" of debt interest. At today's price, unloading 3.5 billion freshly minted shares wouldn't even produce half of the money it needs to fend off next year's repayments.
The reverse-split proposal is also stung by the low share price. Shareholders have authorized Sirius to declare a reverse split at a ratio not greater than 1-for-50. Two months ago, it would have meant replacing every 50 shares at $0.39 for a single share at $19.50. Today, that same high end of the reverse split range would leave Sirius XM at just $7 a share.
Reverse splits aren't pretty. Few are the companies like Priceline.com (Nasdaq: PCLN) that have gone on to be winning investments after declaring reverse stock splits. However, Sirius XM's choices are limited. Regardless of what Nasdaq does in alleviating listing requirements for exchange-traded stocks that break the buck, institutional investors aren't going to load up on stocks fetching roughly three nickels a share.
The real shame here is that Sirius XM took so long to face its refinancing and share price demons. A $300 million Sirius convertible is now due in two months, the first of next year's three huge tollbooths.
Unlike its auto manufacturing partners Ford (NYSE: F), General Motors (NYSE: GM), and Chrysler that may be given a governmental lifeline, no one is in a rush for a satellite radio bailout. Even if the slow-footed ways of regulators put Sirius XM in this position with few grains of sand left in the hourglass, Sirius is on its own and it waited too long.
Maybe Sirius thought that time would be on its side, and a higher share price would open up more flexible financing possibilities. All we know is that it finally got what it wanted -- and needed -- yesterday. For the sake of shareholders, let's hope that yesterday didn't come too late.
More news than static on Sirius XM:
Will Sirius XM make it? Weigh in with your thoughts in the comment box below.
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