There is one thing all investors need to know about securities law; anytime someone purposefully does something in order to make a stock go up or go down, they are doing something illegal. You can go to law school and study it for years, but that’s what it boils down to. You make educated bets on stocks based on the factual information you have, but you never purposefully make the price of a stock move in either direction or drive sentiment. That’s manipulation and it’s illegal. That is the first thing anyone needs to know about the stock market.
Very recently, at one of the other blogs and several of the main stream media outlets, an article calling for a reverse split on or about the Christmas holidays was written. After reading them, I could not disagree with the premise any more than I do. It is my intent to provide the facts of why this is a terrible idea…and why it is not going to happen in the time frame they suggest. From my perspective…people of that opinion do not belong holding shares of SIRIUS XM. You don’t do a r/s on weakness to artificially raise the stocks price over one dollar unless it is a matter of delisting and must be done to satisfy listing requirements. I am quite sure there are many long holders of SIRIUS XM who would agree. Actually I see the above scenario as a slap in the face for longs and a lack of belief in the company and its improving business and metrics.
Let me begin with the obvious, during the second quarter conference call, CEO Mel Karmazin himself commented that the r/s would ONLY BE USED to solve the delisting issue if necessary. These were bold words from a CEO with renewed confidence in his focus and direction for the combined entity that is SIRIUS XM. Additionally, there are 1 Billion more shares authorized which could be used to help pay down debt, after Liberty gets their percentage of the additional float that would leave 600 million shares to pay off significant debt and de-leverage much of the balance sheet. Doing a reverse split now at this weak a price or any time before the additional float is in play would be totally counterproductive and not make much financial sense for the company. As many of us longs know, the best course of action is the one that the company is currently on. Continuing to improve metrics, continuing to find additional revenue through innovation with products such as the XM SKYDOCK for iPOD and iPHONE users and increasing subscribers in both the OEM and retail lanes while working to continue to reduce operating costs and improve efficiencies is the path to success and profitability. There is no other way to put it.
There will be no reverse split in my opinion unless it is absolutely necessary, and not before at least Q3 2010 if it is to comply with NASDAQ and avoid delisting. With extensions granted…that is the timeframe. To call for a r/s under any other circumstances is very short sighted and a questionable position to take at this time. I do believe there is a reverse split in the companies future but at a much stronger share price than a dollar. I would think whoever feels that a reverse split now is best is not confident in the company, is driving an agenda and should probably not be holding any shares.
Disclosure: Long SIRI
Yes Steve. Those authorized shares can be used to pay down debt right now. And I also agree a R/S before the end of the year is out of the question. Mel has stated his intentions very clearly. Right now would be to do it on a position of weakness. After the Q3 report, there will be no longer talk of sub .80 cent prices, IMO, so Q4 will be looked at to clear the $1 mark for good, if Q3 doest do that already. Be a non issue. Mel can still get another 180 days extension past March. And then NASDAQ can still waive it, due to market cap exceptions.
Good first article! Will be looking forward to comments in the days ahead.
Rick
Yes, the authorized shares can be used to pay off debt. There is no reverse split coming before the end of the year, as Mel has stated his intentions. I think this is a non issue, due to SiriusXM about to have the 2 best quarters in its history, back to back. This will be trading well over $1.
Good points here are undermined by the transparent ax-grinding and judgmental tone (over an opinion, no less!). Although the process of composing this likely served a therapeutic purpose, additional value could be gleaned from considering the possibility that the best writing comes from better motivation than this.
Please explain where I have a transparent axe grinding issue. This is not about 1 writer…this is about a position taken by SEVERAL websites, blogs and media outlets. Perhaps it is personal to you because of your closeness to the situation. This article is opposing a r/s in the near term. I am sorry if you find fault with it…but certainly you are entitled to do so.
Opposing views are not axe grinding Cartman…that is not what this is about from my perspective.
I agree with this article 100 percent. My new user name here is King1, formerly known as Relmor2003. R/S is a non issue? Why? Ask me in January. Ill tell you then. NON ISSUE. R/S will only happen on strength, if ever. 180 day extension possible from March.
@asm610
“Opposing views are not ax-grinding.” Right back at you, Steve.
Let me be very clear here, since apparently it was missed in my initial post. I don’t disagree with the larger points made here. It’s the tone that put me off.
Honestly, I am sick to death of this issue. I believe whether it happens tomorrow or next year — all other factors remaining the same — longs will emerge just fine from a R/S, if it happens. The hand-wringing over this is absurd, in my opinion. If you believe in the company and its fundamental soundness moving forward, as I do, then R/S is a non-issue.
It is interesting, and perhaps a bit disingenuous, that you suggest this might be personal to me, while ruling out any possibility that it is personal for you. I would submit that there are far more reasons for it to be personal for you, given that you were much closer to the situation than I. And whether you see it or not, the tone of your piece oozes “personal-ness” and a distracting level of cyberspatial machismo.
Don’t you think it’s even a little bit over the top to suggest that someone is not worthy of holding shares if they disagree with your point of view on a R/S? And you felt so strongly about this that you were compelled to say it twice.
Again, to be very clear, I think there are some excellent points in this piece. That is not at all surprising to me, as I am well-acquainted with your work and have appreciated your contributions to the general dialogue over the months. But this one reads to me like you were motivated more by a desire to show off your middle finger than anything else. And that, in my opinion, is where you shot yourself in the foot a little bit.
Again, the best, most effective writing is spawned by loftier motivation. Thank you for taking the time to consider this.
cartman,
In re reading the article..you make a very good point. There was no reason to re hash the initial point at the end. I will take it to heart and be more thorough in the future. Thank you for your input.
Mel was at Recent Libery Investors CC, indicated that R/S was not in the immediate future.
Thanks for writing this great article. I couldn’t agree more! I’m tired of reading from others that a R?S would be a good thing. Those who support a R/S at this time or before the holidays are misguided IMHO and knowingly or unknowingly contribute to all the negative info put out by the bashers that is keeping the SP depressed. Other then to maintain listing, IMO a R/S should only be done from a position of financial strength if the SP remains depressed. To do it now or until the company’s turnaround story can no longer be denied would send a clear signal to the bashers and MM’s that management has no confidence in the company’s fundamentals raising the SP and down we will go again! I can see all the shorts salivating over the mere thought of that happening! SIRIUS may be currently selling for less then a $1.00 but it certainly is not your typical penny stock!