There's some silly chatter beginning to creep into cyberspace.
We're now just weeks away from the second anniversary of Liberty Capital's (Nasdaq: LCAPA ) bankruptcy-saving loan to Sirius XM Radio (Nasdaq: SIRI ) . This opens up the possibilities for Liberty Capital's 40% preferred-share stake in the satellite radio giant. Some are suggesting that Liberty Capital's John Malone will swallow Sirius XM whole.
They don't get it.
Others are suggesting that some of the tech world's biggest darlings will step up for a bit of Sirius XM.
They don't get it either.
I'm not bashing Sirius XM. I predicted that shares of Sirius XM would gain ground last year. They sure did. I'm on the hook by calling for a repeat performance in 2011. I think I'll be right about that, too.
However, I think Sirius XM's success as a growth stock will happen as an independent. Anybody looking to crank up the rumor mill on a Sirius XM buyout either doesn't understand how much it would cost or the mind-set of potential acquirers.
Let's look at three suitors that will never buy Sirius XM.
It's easy to put Liberty Capital at the top of the list of potential buyers. Malone loves to chase satellites. He was DirecTV's (NYSE: DTV ) chairman and largest shareholder before having to divest last year. He seized control of bankrupt overseas satellite radio provider WorldSpace two years ago.
Perhaps most importantly, he'd have to shell out the least amount of money for Sirius XM since Liberty Capital already owns 40% of the company.
Unfortunately, swallowing down all of Sirius XM is too rich for his blood. Do you know how much he paid for his media empire's 40% preferred-share stake in Sirius XM? Nothing. Liberty's piece of the satellite radio star was a door prize when Malone let Sirius XM borrow $550 million at stiff rates. That stake is now worth roughly $4.5 billion, making this one of the most brilliant media deals for any company in years.
It would cost Liberty Capital nearly $7 billion to buy the 60% of the 6.4 billion fully diluted shares that it doesn't already own, and that would be at today's prices. There's also $3 billion in debt to inherit. In sum, we're talking about $10 billion that even a rich cat like Malone can't whip up.
You also didn't think Sirius XM would be cashing out without a juicy premium buyout, do you? Of course not.
Again, Malone's in the ideal position to absorb a premium because he would only have to pay that on the nearly 4 billion shares that Liberty Capital doesn't own. However, we're still talking about $1 billion for every quarter per share above today's price. Even if one argues that Sirius XM is worth every cent, Liberty just doesn't have that kind of scratch.
Apple (Nasdaq: AAPL )
There was a dizzying initial buzz last year when it was announced that Apple was buying a Siri. However, the Cupertino behemoth wasn't taking on satellite radio for size. Apple was simply buying a small mobile apps maker that just happened to share its corporate moniker with Sirius XM's ticker symbol.
Apple closed out its latest quarter with $59.7 billion in cash, short-term investments, and long-term marketable securities on its balance sheet. There is no doubt that it can afford to buy Sirius XM, at any price.
Why would it? Apple would have to shell out at least $12 billion to acquire Sirius XM and assume its $3 billion in debt. Even the most ardent of Sirius XM bulls would have to concede that Apple's stock would get crushed if the high-margin darling snapped up a much slower-growing company with forward net margins in the single digits on a percentage basis, regardless of the $15 million in enterprise value that Sirius XM currently commands.
Apple can always strike deals with Sirius XM. There's nothing stopping Apple from adding receiver chipsets in its iPhones and iPads, but why buy the cow it can otherwise milk? Apple can simply strike the same kind of revenue share deal that is fattening the coffers of General Motors (NYSE: GM ) and Ford (NYSE: F ) with every activated Sirius XM account.
There's an inherent advantage in Apple buying pivotal suppliers, but it's never gone after content.
Google (Nasdaq: GOOG )
"At some point, either Apple or Google will need a spot on a vehicle's dashboard in order to take their game to the next level," Satwaves' Brandon Matthews wrote a few months ago.
Matthews is a sharp tracker of all things Sirius XM, but suggesting that Google and Apple will enter into a bidding war for the satellite radio giant is a bit much. Google's net margins are even chunkier than Apple's, so one can only fathom the uproar.
Besides, it's not like regulators would let this happen. Sirius and XM took nearly two years to merge, and the combined company is even larger today. Antitrust regulators have kept Google waiting since last summer to approve a $700 million online travel acquisition. How likely are they to clear a deal that would be at least 20 times larger?
Life after the non-buyout
There's no shame in going it alone. Sirius XM has been one of the market's biggest winners over the past two years as a swinging single. Why must we marry it off?
If anything, Sirius XM will be the one on bended knee in the future. It's the one with $8 billion in net operating losses that it can use to offset future tax bites. Those carry-forwards are unlikely to pass through to a potential buyer. They're Sirius XM's to use to make its future profitability that much more potent.
In short, just because Sirius XM isn't going anywhere doesn't mean that it's not going anywhere.
Have a different take? Where do you see Sirius XM in three years? Share your thoughts in the comment box below.