With all of the head-shaking talk about nationalizing some of the largest financial banks -- like turning Bank of America into a literal bank of America -- is it outlandish to suggest that Sirius XM Radio (Nasdaq: SIRI ) would look better on the arm of Miss America?
Of course it is. When did your inner capitalist shrivel up and die, kid?
However, there are a few compelling reasons for the government to keep Sirius XM alive at all costs, even if it means going the nationalization route. In the ultimate irony of all, the very reasons for nationalization are core capitalistic competencies.
Just don't tell Howard Stern that he may be taking orders from Uncle Sam, OK?
Billions at stake
There are two huge advantages to nationalizing Sirius XM: the company's tax-loss carryforwards and the significance of satellite radio to the ailing automotive industry. Billions rest in the balance of either reason.
I discussed the satellite radio operator's massive tax-loss carryforwards last month, though only to the extent that billions in accumulated losses will result in billions of tax-free profits in a cheerily optimistic view of the company's future.
The Wall Street Journal over the weekend posed a more near-term solution, suggesting that Liberty Media (Nasdaq: LINTA ) and to a lesser extent EchoStar (Nasdaq: SATS ) were angling to cash in on Sirius XM's attractive impact on an acquirer's effective tax rate. There are plenty of hoops that a buyer would need to jump through to cash in on Sirius XM's more than $6 billion in accumulated losses -- and mounting. However, a tactfully nimble and careful acquirer would be able to offset a similar amount of pre-tax profits, saving the company at least $2 billion on their tax bill.
More than $2 billion in extra pocket change would sound great to companies like Liberty Media and EchoStar -- and an even better deal to the truly profitable media giants like Comcast (Nasdaq: CMCSA ) and Viacom (NYSE: VIA ) -- but it would mean at least $2 billion less in taxable revenue for the government.
Conspiracy theorists, start your engines.
The other hefty reason that the government should wager on a healthy Sirius XM is that it has already dished out billions to salvage the automotive industry. General Motors (NYSE: GM ) and Chrysler are already playing with $17.4 billion of taxpayer money and are asking for $21.6 billion more. Ford (NYSE: F ) already asked for a "just in case" credit line of $9 billion back in December, and it's really just a matter of time before it has to ask again.
What does Sirius XM have to do with Detroit? Everything. At a time of waning demand and margin contraction, satellite radio represents an add-on accessory that delivers a predictable revenue stream to the carmakers. Both Sirius and XM have brokered deals with the automobile manufacturers, rewarding them financially for delivering subscribers. Most of the nearly 19 million activated receivers are factory-installed systems.
Sirius XM can't save the automakers on its own, but it's clearly part of the solution at a time when everything else appears to be part of the problem.
In other words, a $3 billion to $4 billion bet on nationalizing Sirius XM -- and that is with its creditors made whole but its common shareholders wiped out -- would result in avoiding a better than $2 billion hit in tax revenue if Sirius XM is tactfully acquired, and it would protect the $17 billion investment -- going on $39 billion bet -- keeping domestic automakers alive.
Sounds feasible? Fuhgeddaboudit. It's never going to happen.
The nationalization reality
Sirius XM's model may have its flaws. The programming costs are high. The satellite upkeep is steep. However, it's preposterous to believe that Sirius XM will be nationalized just because it's having a challenging time in turning the free cash flow corner.
Why suggest nationalization then? Well, somebody is going to bring it up given the troubled banking chatter. I may as well do it first so I can soberly shoot it down.
Sirius XM isn't going away. Even if Liberty didn't emerge with its last-minute capital infusion last week, Chapter 11 bankruptcy reorganization would only destroy the common stock investors. Sirius and XM services will live on, though likely under new leadership.
There are way too many media companies -- from satellite television operators to terrestrial radio networks -- that would bid on Sirius XM's assets before letting the licenses be squandered.
So breathe easy, capitalism. Take a load off, Stern. Sirius XM isn't going away. It may eventually wind up as an appendage to Liberty Media, but never on the arm of Lady Liberty.
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