No One Takes Sirius XM Alive

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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.

Liberty Capital
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.

Get it?

Have a different take? Where do you see Sirius XM in three years? Share your thoughts in the comment box below.

General Motors and Google are Motley Fool Inside Value recommendations. Google is a Motley Fool Rule Breakers pick. Apple and Ford Motor are Motley Fool Stock Advisor selections. The Fool has written puts on Apple. The Fool owns shares of Apple, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz is a subscriber to both Sirius and XM. He does not own shares in any of the stocks in this article. He is also a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool has a disclosure policy.

Read/Post Comments (22) | Recommend This Article (8)

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 08, 2011, at 10:37 AM, doubting wrote:

    Makes 100% sense!!!

  • Report this Comment On February 08, 2011, at 10:38 AM, GeorgioG wrote:

    Patience is the key to investing in this legal monopoly. No other skilled required at this point....In my opinion

  • Report this Comment On February 08, 2011, at 10:45 AM, GeorgioG wrote:

    Sirius has an Apple esque hard core following that only grew during a horrible recession..What does that equal during the good times? $3 by 12/11

  • Report this Comment On February 08, 2011, at 10:48 AM, Underwater2 wrote:

    If Liberty buys more than 50% (40% is deemed purchased under tax rules) within a 3 yr period they cannot obtain the Net Operating Losses. As long as they wait that long to close, they will inherit those NOLs which makes the stock 3.2 Billion cheaper to Liberty. Its a game changer that you havent factored in.

  • Report this Comment On February 08, 2011, at 11:13 AM, janericcarl wrote:

    SIRI is probably on cruz control for the next 3 to 5 years. It will easily gain one dollar, or more, in value for each year to come. The smart money would suggest..."Enjoy the ride".

  • Report this Comment On February 08, 2011, at 11:44 AM, pete163 wrote:

    Works for me as well, I'm long Sirius XM anyway for at least 5 years or more. If Liberty has a grain of sand in them, they will set tight and wait it out. The bags of money are there and they know it. All those companies that were noted are all buying up shares of Sirius XM and Liberty knows it, so a take over really dose not have much of a chance. Mell has got or put himself in a sweet spot with the Tax's over the long term and the sugar from that will spill over into stock value on the up tick. The main thing is the shorts for now, they are buying up just to sell at a loss just to hold the stock down. Someone has a truck load of money on the short side and fearing a big loss is coming on the 25 of march when the option close

  • Report this Comment On February 08, 2011, at 1:20 PM, sirisirisiri wrote:

    I'm not predicting that a buyout will happen, but your analysis is way off. You are saying that Apple isn't interested in content? Apple's core business is providing devices that both create and deliver content.

    At what point do you see all of publishing imploding upon itself in the fight to wrangle the internet and the new age of mass consumption. Can anyone say "AOL+Fail". Publishing is not the same. Print, Music, Movies, etc.... The Golden Age of media as we know it is being turned on its head. Only those with vision will be able to take advantage of the misteps of Old Media.

    Wake up FOOL! Your wrong again.

  • Report this Comment On February 08, 2011, at 2:12 PM, Valuestocksonly wrote:

    Rick your negative articles lately CSTR, SIRI. BTW, Rick i am making a killing in CSTR. And SIRI, but at a slower pace. Your too much! Your articles are strictly to get clicks now. Other than that worthless. You changed. Because you sold SIri too early.

  • Report this Comment On February 08, 2011, at 2:23 PM, canuckbot wrote:

    sirisirisiri Apple has crappy content and their software is controlling.

  • Report this Comment On February 08, 2011, at 4:29 PM, Brent2223 wrote:

    If you put the NOL's comment at the top, you could have saved yourself the rest of the analysis. That's the deal breaker, can't see anyone paying a premium to 'pay out' SIRI for the unrealized benefit. In a few years once SIRI profits have offset a good portion of these then I think it'll be an interesting buyout candidate, but no time soon.

  • Report this Comment On February 09, 2011, at 12:18 AM, Fredlee009 wrote:

    Rick stop covering this company please. You have no clue. None of these companies u mentioned are even in the game to buy them out, or would want too. Stop pumping killing though, all ur doing, If idiots want to run around naming every large company is going to buy sirus xm, talking to you BM, then let the fools. Try mentioning real canidates. Liberty, At&T, and Verizon are the top 3 contenders. Cell phone companies want the other half of sirius xm's spectrum they wont need in hopefully under 10 years. Also a cell phone company buying them would pass the DOJ approval.

  • Report this Comment On February 09, 2011, at 12:19 AM, Fredlee009 wrote:

    Google, MSFT, Apple, almost cant buy anything without scrutiny, especially a media giant like Sirius XM.

  • Report this Comment On February 09, 2011, at 12:20 AM, Fredlee009 wrote:

    You saying liberty wont buy sirius xm is the most foolish thing youve written since ur a r/s article bash fest is a good thing. Only morons think a r/s is a good thing. Thank God Sirius xm agrees with me, and not you.

  • Report this Comment On February 09, 2011, at 12:23 AM, Fredlee009 wrote:

    Sorry, I meant Apple and Google arent in the game, you did mention Liberty, and then nix nayed the most obvious canidate. LOL. You nix nayed a 40% holder who got that part for free,that currently has a poison pill in play for those who would provide competition for the company. Sorry Liberty that expires on August 1st, and with the entire concept of the poison pill under legal fire right now (illegal management attempt to control a companys stock) and only protects current stockholders from gaining future value, not protection from anything else, dont count on it being extended either. When its done its done.

  • Report this Comment On February 09, 2011, at 12:23 AM, Fredlee009 wrote:

    In 10 years, no one will even remember what a poison pill is.

  • Report this Comment On February 09, 2011, at 12:25 AM, Fredlee009 wrote:

    Only purpose of the poison pill was to protect the NOLs. They are also safe on August 1st, hence the exact date of the expiration of the poison pill matches to the day the day our NOL's reset to a 100% position.

  • Report this Comment On February 09, 2011, at 11:42 AM, soulraper wrote:

    important imformation for the longs of this position come click some ads as a thank you

  • Report this Comment On February 09, 2011, at 1:03 PM, scomata wrote:

    "Rick stop covering this company please. You have no clue. None of these companies u mentioned are even in the game to buy them out, or would want too. "

    Did you READ the article?

  • Report this Comment On February 09, 2011, at 1:47 PM, shworden wrote:

    Here's Sirius/XM's problem that is keeping this awesome company for growing faster. As a SubContractor worked at XM prior to their launch in 2001/2001 - delayed due to 9/11

    Check out all the retailers and their websites. The availability of receivers that work both in a Automobile is so skimpy and high priced that it is not helping to promote their product. In fact receivers that work in the home is scarce. And if you do find a home receiver you have to purchase a accessories to make it work in the car, and it also works the other way.

    The prices are outrages for the selection of available receivers.

    On the other hand look at the cell phone companies and prices on recievers. Cheap with a contract.

    Since 2002 ... They just have not figured that out, and for the life of me, I don't know why!


  • Report this Comment On February 09, 2011, at 2:38 PM, racchole wrote:

    Satellite radio will face the hardships and competition associated with piracy. When it becomes commonplace to have a constant Internet connection in the consumer automobile, people will stop paying for satellite radio and will turn elsewhere for "more free" music. Satellite radio is all about convenience, and convenience alone is not enought to keep the monstrosity of SIRI/XM afloat in the long run.

  • Report this Comment On February 09, 2011, at 11:42 PM, keroyk wrote:

    the only prolem is that siri/xm is a winner and it will continue to be one.No buy outs it' for real. Long SIRI thanks

  • Report this Comment On February 10, 2011, at 12:25 AM, FM5 wrote:

    i like it , it's good , it's like getting i tunes with

    siri , recording all the songs you want for 12.99

    a month , & getting sat raido at the same time with nav , Apple better do it, and now, before it go's up, Apple need to do it to feel good . so it feel's like it's got a little more power , on google.

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