Sirius XM Radio (Nasdaq: SIRI) CEO Mel Karmazin has said that he is not interested in executing a reverse split, now that his company is back in compliance with Nasdaq OMX Group's minimum listing requirements.
Investors may have a different idea.
Last week's shareholder meeting delivered overwhelming approval of an extension for the authorization for a reverse split. Sirius XM now has 13 months to execute the move. It would have expired at the end of this month if stockholders had voted the proxy initiative down.
The real surprise is the gargantuan sum of nodding heads. Nearly 5 billion shares were cast in favor of the amendment, far greater than 308.3 million shares that voted against the extension.
Obviously, this doesn't mean the approving majority wants a reverse. Most stakeholders simply want to give Sirius XM's board the flexibility to execute one, especially if the stock once again slips under the $1 minimum bid price long enough to bring on another delisting notice from the exchange.
That kind of drop could certainly happen, given Sirius XM's volatile trading history. However, the past few times Sirius XM has dipped beneath the $1 mark -- like yesterday, for example -- shares have found a way to quickly creep back.
The fundamentals just don't call for a dip back into last year's pocket-change muck. However, it's also hard to justify a significantly higher price.
On one hand, Sirius XM is now profitable, and here to stay. Of course, the same can be said for satellite-television giants DirecTV (NYSE: DTV) and Dish Network (Nasdaq: DISH). If we go by enterprise value, Sirius XM trades at a much higher price-to-sales and price-to-earnings multiple than do satellite television's stars. Oh, and before a satellite-radio bull argues that it's a travesty to compare Sirius XM to DirecTV and Dish, given satellite radio's growth, let's go to the tape. Sirius XM, DirecTV, and Dish are all projected to grow their revenue by a mere 6% to 7% next year.
Now that we know that Sirius XM is profitable and that it has its debt burden under control -- catalysts that helped propel the stock from barely worth its $3 billion in debt to nearly $10 billion in enterprise value today -- it will be harder to smoke out the next level of catalysts. Sure, there's the likelihood of a Howard Stern renewal and a Russell index rebalancing to provide small sparks, but will it be enough for Sirius XM to turn its back on its sub-$1 trading once and for all?
A reverse split isn't the answer, but it is the end of a question.
Such a move isn't fatal, either. E*TRADE became the latest company to execute a reverse split. Its new 1-for-10 price began trading yesterday, and the discount broker rose by 6% on the day.
Karmazin didn't buy himself another 12 months of authorization time for nothing.
Should Sirius XM go through with a reverse split? Share your thoughts in the comments box below.
