Sirius Shrinks to Expand, Expands to Shrink

What's a little synergy without sin?

The Washington Post is reporting that 80 Washington, D.C.-based XM employees have been let go this week, clearing the way for cost savings that may eventually transform satellite radio behemoth Sirius XM Radio (Nasdaq: SIRI  ) into a cash-flow positive giant.

It doesn't end with just a few dozen dismissals, of course. The real savings will come as the company more effectively services its now 18.6 million combined subscriber base, takes advantage of opportunities to lower programming costs, and can spend money marketing satellite radio as a platform (instead of two rival services).

With shrinking operations to expand profitability on the one hand, the company is set to expand its share count to ultimately shrink it later on the other.

The company filed plans for December's annual shareholder meeting with the SEC last night, gearing up to ask investors to approve the widening of its authorized shares (from 4.5 billion to 8 billion) as well as an eventual reverse split.

Beefing up the authorized share count is not in response to an outside takeover. The company simply wants the flexibility to dole out more shares. It would be dilutive, naturally, but it's one way for the company to buy its way out of three hefty debt repayments that are due next year.

As for the reverse stock split, I think we all saw this coming. The stock hasn't traded above $1 since mid-September, so a Nasdaq delisting notice is coming. After 30 trading days below the buck mark, the exchange threatens to boot a stock if the share price isn't brought back up within the next six months. A reverse split solves that, if the company can't work its way back up on its own.

Several companies, including Priceline.com (Nasdaq: PCLN  ) , JDS Uniphase (Nasdaq: JDSU  ) , and most recently Sun Microsystems (Nasdaq: JAVA  ) , have survived reverse splits.

Sirius also isn't the only radio stock trading for pocket change. Terrestrial broadcasters like Citadel Broadcasting (NYSE: CDL  ) , Emmis Communications (Nasdaq: EMMS  ) , and Regent (Nasdaq: RGCI  ) have all broken the buck in the market downturn.

Considering the shrinking headcount -- and eventually the shrinking share count, post-reverse -- Sirius XM is simply taking steps backward to take a larger step forward in the future.

More news than static on Sirius XM:

XM Satellite Radio is a former Rule Breakers stock pick. A free 30-day subscription will shed some light on why the satellite radio company made the cut before being cut. Priceline is an active Motley Fool Stock Advisor recommendation.

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 (5) | Recommend This Article (1)

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 October 17, 2008, at 2:10 PM, spr0949 wrote:

    I think it is time for the shareholders to bring a class action suit against the management of Sirius for their inaction regarding the merger request, and against the NAB and the FCC for conspiracy to defraud the shareholders of Sirius. I am sick and tired of Sirius management doing nothing but diluting the shares of their shareholders and not doing anything to enhance to value of their company. This is the most poorly managed company I have ever seen. This is a shame. The company had so much potential, and they just let that slip away.

  • Report this Comment On October 17, 2008, at 2:37 PM, CharlieScottsdal wrote:

    Mel has not taken a true leadership position and definitely has not hit the ground running after the merger was approved. He is either trying to take the company into chapter 11 so he can re-negotiate contracts with Howard Stern etc or privatize the company.

    Nothing is being done in the interest of the stockholders. I am sure there will be an SEC investigation after all is said and done

  • Report this Comment On October 17, 2008, at 9:19 PM, mberan wrote:

    Again, why do you keep on pushing a penny stock? I didn't think this was in the fashion of The Fool. Let this thing sink and quit pushing it. Two days in a row for a penny stock??

  • Report this Comment On October 18, 2008, at 3:25 AM, Konstanu wrote:

    Radio is not the future. It's an old fashioned industry that had its heyday prior to the itroduction of television, and television has new competition from the internet. No one seems to be buying satellite radios at retail stores (best Buy, Circuit City) and car manufacturers are the main distribution method, obviously. Is satrad that good though, to pay 12$ a month? I don't know. They shouldn't try to reinvent the wheel with their ad-free channeles, but do following:

    lower subscription cost

    introduce more advertising

    expand video services, including HD if viable

    add internet access, if viable

    you're welcome, Sirius management, if you are reading this

    feel free to drop me a line @ kuzhinsk@yahoo.com

    But really, folks, what Sirius management has done is not enough, you guys need to step up your game, see above

    -Konstantin Uzhinsky

  • Report this Comment On October 20, 2008, at 4:13 AM, LeeBrando wrote:

    Beaten down by housing, credit and financial crises, the bruised economy is likely to drag into next year, leaving more people out of work and more businesses wary of making big investments.

    http://www.theSmallCapAlert.com

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