This Week in Sirius XM Radio

Things never get dull for the country's lone satellite-radio provider. Shares of Sirius XM Radio (NASDAQ: SIRI  ) moved higher on the week, gaining 1.4% to close at $3.61. The media darling's pop was better than the Nasdaq's 0.5% uptick on the week.

There was more going on beyond the share-price gyrations, though. Morgan Stanley issued a report on Sirius XM, reiterating its neutral stance. The satellite-radio giant made some programming moves centered on annual events. And on the streaming front, Spotify may be going public .

Let's take a closer look.

Neutral ground
There hasn't been a lot of analyst activity on Sirius XM since majority stakeholder Liberty Media (NASDAQ: LMCA  ) moved to acquire the balance of the company. Until the matter is resolved, it limits both the upside and the downside. 

However, that didn't stop Morgan Stanley from issuing a new report on Wednesday, sticking to its $3.50 price target and its equal-weight stock rating. Morgan Stanley's Benjamin Swinburne feels that Sirius XM's guidance is conservative -- it has historically been a low-baller -- but there are still valuation concerns if the Liberty Media deal doesn't go through. Given the strong sentiment among retail investors that Liberty Media is stealing Sirius XM shares, the deal unraveling isn't a ludicrous notion.

We now return to your regularly scheduled programming
It was a relatively tame week on the news front, but that's not a surprise, given the abridged trading week.  

Sirius XM issued a pair of press releases, promoting timely limited-run offerings. It announced that its exclusive Entertainment Weekly Radio will have a full week of coverage of the upcoming Academy Awards. Sirius XM also announced in-depth coverage of the Daytona 500, which isn't really a surprise since it's a NASCAR partner. 

These programming releases don't move the stock. However, they draw attention to its wide breadth of content, and that's clearly been magnetic to Sirius XM's growing base of subscribers.

Spotify marks the spot
There may be another publicly traded digital-music giant on the scene soon. Spotify put out a job listing to find someone to handle external relations. This is a post that typically serves as the head of investor relations after an IPO.

CNBC speculated that Spofity is arming itself to go public, and you can't blame the premium streaming darling with millions of paying subscribers. It will be interesting to grab a peek at its financials.

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  • Report this Comment On February 22, 2014, at 10:37 AM, TJR wrote:

    Has any info come back from SIRI B O Directors on were the offer stands or not.

  • Report this Comment On February 22, 2014, at 3:26 PM, zukerman wrote:

    Don't be a lemming and follow what is written about Malone's attempt to swindle Sirius away from it's retail investor. Am I the only one that finds it strange that Liberty was able to obtain 1B SB using Sirius' good credit rating, yet they now allow their analysts to downgrade the shares. Collusion at it's best going on in Wall Street as usual. One of the twelve book runners in this issue was Morgan Stanley. Does Morgan Stanley make bad business decisions lending to companies that are not fiscally sound? We all expected to see the usual suspects producing anything they could to try and make the illusion that chinks are in Sirius' armor. Charter reported this week and their numbers look the same as all of the cable companies, other than picking up subs from the normal expansion in population they are not growing anymore. Direct TV and Dish showed that they too have reached saturation and rely on price increases and buy backs to support their shares. Vote (NO) as soon as all the liars and cheaters have taken sides.US Structured Equity Issue: Liberty Media’s US$1bn CB

    IFR Americas Review of the Year 2013 | By Stephen Lacey





    Americas Structured Equity Issue 2013

    Liberty Media is a company that takes as much as it can. Notorious for plying investment bankers for ideas, and paying little in return, the media conglomerate focused its funding efforts in 2013 on the convertible bond market with a series of financings. The capstone to those efforts was a US$1bn, 30-year senior unsecured CB that pushed the threshold on pricing, size, and structure.

    “We’re hard. We’re not the easiest to work with,” admitted Liberty Media treasurer Neal Dermer. “But when you do your job we’ll reward you.”

    The CB represented a unique investment opportunity. There are plenty of ways to play Liberty Media – investing directly into the parent, into its publicly traded holdings, or via a series of bonds exchangeable into underlying equities – but none provided a similar balance of downside protection and participation in its long-term potential.

    Significant to that potential was XM Sirius Radio, the satellite-based radio company in which Liberty Media owned a 53% stake that represented roughly 68% of its market capitalisation at the time of the offering.

    Given Liberty Media’s history of spinning off assets, the security was structured with a novel portability feature to true-up investors – in the event of a spin-off, investors would be entitled to roll into the spinco capital structure based on an averaging period.

    “The debt moves, the equity moves,” said Suvir Thadani, co-head Americas equity-liked origination at Citigroup, of the potential spin-off. “That allowed us to get a premium valuation.”

    XM Sirius also provided a benchmark credit given its established debt profile.

    The effort culminated on October 10 in the pricing of the US$900m CB, structured with matching call protection and investor puts in 2023, at a 1.375% coupon and 22% conversion premium. That was through the 1.50%–2.00% and 17.5%–22.5% marketing range, while the deal was upsized from the original US$500m base deal. Exercise of the overallotment option pushed total sizing to US$1bn.

    The company used a portion of the proceeds on a call-spread overlay to offset economic dilution to its shares above US$255, a 75% premium. The cost of repurchasing the embedded call option, the first step of the trade, is tax deductible while the sale of warrants at the higher strike is not, providing Liberty Media a tax benefit relative to the 1.375% coupon paid out to investors.

    “Because of competition we got great pricing on call spread,” said Dermer. “We have a negative carry because of the tax benefit relative to the coupon. Essentially we get paid every year.”

    Citigroup, Morgan Stanley and JP Morgan were the active leads on a syndicate of 12 bookrunners.

    To see the full digital edition of the IFR Americas Review of the Year, please click here.

    To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.c

  • Report this Comment On February 22, 2014, at 4:47 PM, Austin77478 wrote:

    Vote NO!!!!

  • Report this Comment On February 25, 2014, at 1:34 PM, Thodeas wrote:

    On the positive side of the Sirius XM Radio crisis, if there is a positive side, investors are gaining knowledge of which analysts are trustworthy and which are not, more so which are not. If an analysts simply came out and said a stock price is down because the majority of simpletons have fallen for the lies and deceptions of crooked analysts, then he would probably have a legitimate claim.

  • Report this Comment On February 26, 2014, at 8:12 AM, TJR wrote:

    Liberty / Siris deal has stink all over it.

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Rick Munarriz

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he now lives a block from his alma mater.

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8/31/2015 4:00 PM
SIRI $3.82 Down -0.02 -0.39%
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