By Steve Garcia

In the weeks since the final bankruptcy sale and approval of Worldspace assets to Noah Samara; this time through Yazmi LLC, one thing is abundantly clear.  The plight of all the assets of Worldspace and SATCO is as yet unknown and still awaiting a final outcome.  Court documents prior to final sale stated that the consideration to be received from Yazmi in the sale purchase agreement would not be sufficient to pay Liberty Satellite Radio and Liberty Satellite Radio Holdings in full.  The Debtors estimated that Liberty’s aggregate secured claims were in excess of $116 million dollars.  Under the settlement agreement, the Debtors were released from such claims and the corresponding liens, allowing the Debtors to distribute the proceeds of the sale to other creditors.  In exchange for that, the Debtors and the other Parties to the settlement agreement provided releases to Liberty, and Liberty received other consideration.  That “other consideration” was Liberty obtaining a return of $370,000 in funds which the debtors transferred to Liberty; that Liberty had loaned to support the WorldSpace Italia subsidiary.  When Liberty decided not to pursue a Liberty purchase agreement, the need for those funds evaporated. Liberty also received $250,000 of the Yazmi sale proceeds, which was 5% of the total and significantly less than Liberty would have gotten if its senior secured claims were still in effect.  The Debtors believe that the note from WorldSpace Italia that Liberty received is of little value; the Debtors also believe WorldSpace Italia cannot repay that note, and the Debtors themselves have limited resources with which to possibly pursue collection.  The Debtors were willing to relinquish their right to abandon their responsibilities and their assets to Liberty in exchange for Liberty’s relinquishment of much (more…)

By Steve Garcia

After three months of incredible tall tales and speculation about insolvency running rampant, it appears that BP (NYSE:BP) (Formerly British Petroleum) is regaining a bit of lost ground as well as squashing a lot of media myths that were thrown out there.  Very recently, there have been reports suggesting that while the spill was a terrible accident to be sure….the damage done is much less than was originally speculated and pushed in the mainstream media.  Now I am not saying there is not plenty of damage done already, but as I wrote in an earlier piece, where are all the beaches blackened by oil?   Where are all the contaminated fish in the gulf?  Are they avoiding capture?  The testing of fish in the gulf has proven that fishing there is still safe.  Areas once off limits are slowly coming back on line for gulf fishermen.  I myself wonder why areas were off limits to begin with.  Did the fish get notified that there were restricted areas they were not permitted to swim?  Silly question I know, but it does make you ponder how this whole situation has been badly managed by the government as well as BP.  I lay the blame on both.  BP CEO Tony Hayward was not equipped to deal with the media covering this event at all.  How he became a CEO is anyone’s guess.  It takes a lot more than an education to be CEO material, and high among the qualifications should be crisis management and media sense, both areas in which Mr. Hayward is unfortunately lacking.  In fact, those two qualifications or lack thereof are what cost him his job.

Getting back to the heart of the matter; it appears that much of the oil has disappeared before it had a chance to do serious damage to shorelines and more marsh areas.  This has been written about lately with even well known scientists saying that natural microbes appear to have done their job and gobbled up considerable amounts of oil.  Some oil has evaporated in the summer heat as well. Sure there has been quite a bit of oil covered fowl photographed being washed by volunteers, and it is heartbreaking to see them as helpless victims of the disaster, but where are the massive amounts of dead and dying animals.  It was not long ago, that media reporters like Anderson Cooper were sure that there would be thousands of dead animal carcasses washing ashore.  Has BP managed to hide them all?  Of course not, so where does this lead us.

It has become more than apparent that the Obama administration wanted this catastrophe to be its Alamo for the Green Energy coalition. At the center of the controversy is Congressman Ed Markey who has never missed an opportunity to bash BP and big Oil in general.  In fact, he has been doing this since long before this disaster took place, and has just dialed up the rhetoric since it began.  Some of his early commentary during this administration is available here: http://www.huffingtonpost.com/rep-ed-markey/the-white-house-the-house_b_143721.html

I would like to see an investigation into his and some other politicians commentary and the timing of it. It seemed awfully calculated at times during this crisis.  The constant negativity by the White House and the media is plain proof of  the attempt to make the spill  the equivalent of the Alamo for the Green Energy coalition. . However, the recent turn of events when BP capped the well successfully and early has created a sudden silence from the administration and the coalition members as they try to figure out how to spin the positive recent physical and scientific news, and continue to attempt to kill gulf oil industry jobs in an already weak economy with their insistence on a deepwater moratorium.  It was more than obvious to anyone who listened to the questioning of big oil executives recently, that none of the companies had any real plan of substance to deal with any crisis at all.  BP took a ton of heat, and rightly so, but with that heat came lots of manipulative media stories designed to push market sentiment on BP lower than it ever should have been.  The rumors of BPs demise have been greatly exaggerated.  BP shares have been trending higher and recapturing lost value lately, and that trend should only continue as the company gets ready to kill the well permanently.  Thankfully, there has been no oil flowing for two weeks now, so every drop that is skimmed is making a real difference.   That can only be a positive development for sure, along with the tactics and knowledge that has been gained from the situation.

Of course there are still lawsuits to defend, and much more cleaning up to do for the company and all the workers helping to make it better.  The real tragedy here is that 11 workers may have lost their lives because of incompetent decision making by some executives from BP,  Anadarko and Halliburton.  For that, no price is too great in compensation.  As the investigations continue, there will be much revealed regarding incompetence and hopefully those individuals responsible will be made accountable for it along with their companies.  However 11 families will never really feel true joy again, even with the accountability, and that is one price that can never be paid in full.

BP continues trending higher having closed at $38.47 Friday, up from the lows of last month and the below 30 dollar rampage we saw back in June.  As an investor, capitalizing on situations like this are rare and must be viewed with caution, but can pay huge gains if you can weed through the nonsense.  As always, doing your own research along with reading other peoples research is the best way to go.  Anyone else out there had success researching the situation and accumulating or trading BP ?  We’d love to hear some feedback.

Disclosure: Currently holding a long position in BP

By Steve Garcia

For much of Wall Street’s history, stock trading was pretty straightforward. Sellers and purchasers would meet on exchange floors and bargain until they struck a deal. However in 1998 things changed, and rather quickly as the S.E.C. authorized electronic exchanges to compete with marketplaces like the New York Stock Exchange. The intended outcome was to open markets to anyone with a desktop computer looking to invest cash and be in control of their own destiny to a degree.

However as new marketplaces continue to emerge such as the Edge exchange which recently got approval in March, the home desktop PC has been unable to keep pace with Wall Street’s computers and technology. Incredibly Powerful algorithms continuously execute millions of orders a second and can scan dozens of public and private markets continuously and simultaneously. These algorithms can spot trends in less than the blink of an eye; long before the average investor, quickly and deliberately changing orders and strategies within milliseconds for institutions and funds. (more…)

By Steve Garcia                            

Last week, Citigroup (NYSE:C) showed a net profit of $2.7 billion, or 9 cents per share when they announced Q2 results, which was down from the 49 cents per share profit of Q1. Citigroup revenue was $22.1bn, down $3.4billion from Q1 2010. Citigroup CEO Vikram Pandit, was happy with what he termed ‘solid’ figures for the latest quarter. Compared with same period last year numbers, consumer banking revenue rose 9% in Latin America and 10% in Asia, more than offsetting declines of 3% in North America and 5% in the Europe-Middle East-Africa region. On a global basis, consumer banking revenue rose 2% from a year earlier, to $8.03 billion.  Trends were similar for transaction services, with revenue rising 5% in Latin America and 6% in Asia and falling 3% in North America and 1% in the Europe-Middle East-Africa region.

With that in mind;  Citigroup continues walking the green mile to sustained profitability this quarter as the Treasury Department announced it will sell 1.5 billion more shares of Citigroup (NYSE: C) stock over the next couple of months.  This is the third tranche sale in the government’s Citigroup bailout fund recovery effort.  The proceeds are part of the repayment of funds from Citigroup’s portion of the $700 billion financial bailout.  The third tranche of Citigroup stock sales will start immediately and be completed by Sept. 30, according to a spokesperson at the Treasury.

The government has already sold 2.6 billion shares for $10.5 billion in the first 2 tranche sales over the course of the last 2 fiscal quarters.  Citigroup originally received $45 billion in taxpayer funds through the Troubled Asset Relief Program (TARP).  Of the $45 billion, $25 billion was converted to a government-ownership stake through shares of common stock  with Treasury receiving 7.7 billion shares at a share price of $3.25.  At that time, the stake equated to 27 percent of the company.  Citigroup repaid the $20 billion unconverted portion of the loan last December.  Citigroup stock over the past 52 weeks has ranged in price from a low of $2.56 to a high of $5.43.

The Treasury Department has stated its intentions to sell its entire stake in Citigroup by the end of this year.  The first tranche of sales, covering 1.5 billion shares, concluded in May.  The second, which covered another 1.1 billion shares, ended recently after beginning in June.  Once those shares are all sold, I would expect some sort of share repurchase by the company, or perhaps a reverse split to reduce the bloated share count.

Though heavily criticized, and rightly so for bailing out these huge financial institutions, it is nice to know that at least there will be a return on the Citigroup investment by the government when all is said and done that can be used to pay off some of the deficit it created.  Simple math shows at least a 10 billion dollar increase in share value at an average price of $4.00 dollars. 

It is also good to see Citigroup continuing its course of return to a core banking institution.  The company continues to re- evaluate its assets and look for buyers for assets deemed expendable by Citigroup in its return to focusing on its core businesses.  Cautious optimism is the thought also with non US markets continuing to show growth for the company, particularly Latin America and Asia. While the growth has been good in those regions, it is still on fragile footing with global economic concerns still prevailing.  Citigroup also is beginning to see real reductions in operational costs from strategies it implemented over the past decade or so of severing long time employees and management and bringing in less experienced and less expensive personnel to replace them.  The initial cost of those severance packages may have been worth it considering the state the company found itself in, in late 2008 and into 2009.  One has to question the decision though as there is no substitute for experience in the highly competitive Banking business.  Overall, Citigroup is getting healthier as a company as it trims the excess fat, sells off non essential assets and toxic debt is painstakingly removed from its ledger. Citigroup is on an upward trajectory if it continues to execute its plan.

 Disclosure: No position in C at this time

By Steve Garcia

During the last few weeks more questions than answers have emerged regarding Sirius XM radio and its actual value in terms of market cap as well as share price.  A look at past valuation when the two companies were separate rivals and competitors as XM satellite radio and Sirius satellite radio looking for a larger share of audience may give us some clues as to why there is so much diverse opinion regarding the merged entity as it is currently valued.

 I pulled two random research reports: one for XM satellite radio from CRT Capital Group LLC dated May 1, 2006; and one from Anderson & Strudwick dated May 10, 2007 for Sirius satellite radio.  Before I go into the reports, it is important to note that the merged entity of Sirius and XM is currently valued at a market cap of 3.6 billion dollars with a closing share price of .92 cents as of Monday July 19^th 2010 on the NASDAQ market.  The company had risen as high in terms of market cap as 4.6 billion dollars with shares reaching $ 1.20 in price earlier this year.

Let’s start with Anderson & Strudwick’s 2007 research report, which came after the merger announcement.  Sirius was carrying a 4.1 billion dollar market cap at the time with a share price of $2.84 and looking forward, Anderson & Strudwick placed an $8 price target on the equity.  Below is an excerpt from that report;

 “SIRI appears to be headed towards one of two scenarios: either they merge with XMSR, or, DOJ/FCC blocks the merger. Should the merger get regulatory approval we would expect investor demand for SIRI’s, and XMSR’s, stock to increase as Wall Street begins to focus on cost and revenue synergies between these two companies. Some Wall Street analysts estimate the synergies between these two companies could be between $3 billion – $9 billion. The multi-billion dollar question is will regulators in Washington DC approve the merger. Given politics inside the beltway of Washington DC, we suspect the answer will be heavily influenced by the lobbying efforts from both pro and anti merger proponents. While Mel Karmazin (CEO of SIRI) has been testifying about the benefits of merging SIRI with XMSR, the National Association of Broadcasters (NAB) is lobbying in opposition. The NAB represents the AM/FM radio stations throughout the US. Given the ongoing debate in Washington DC about the proposed merger we give the deal a 50-50 chance of regulatory approval. Should the merger fail to gain regulatory approval, SIRI still offers upside potential for investors as a standalone company. Prior to the proposed merger, SIRI believed its operating model would push total subscribers towards 10 million over the next few years, generate positive FCF for 2007, and lead to positive earnings in 2008-2009. Our assumption is this business forecast would still be intact, absent a XMSR merger, given the company’s fast growing subscriber base. Since SIRI is giving no guidance on what operating results would be with an XMSR merger, we are adjusting our 2007 earnings estimate to ($0.39)/share and maintaining our rating on SIRI as a standalone company. On a standalone basis, SIRI management has given 2007 guidance of approaching $1 billion in revenues, 8 million subscribers, 2.2%-2.4% churn rate, and positive cash flow for the year. If the merger is approved by year-end 2007, then we will adjust our earnings estimates. For now, SIRI shares are recommended for aggressive/speculative accounts and our price target continues to be $8/share.”

 Keep in mind that at the time, Sirius had approximately 1.45 billion shares outstanding, and shares outstanding does have a relationship to market cap. Next we look at a May 2006 XMSR report from CRT Capital Group LLC.  In this report XMSR was reiterated as a “SELL” with target price reduced to $ 16 dollars from $17 dollars previous price target.  At the time, there were 350 million shares of XMSR outstanding.  Here is an excerpt from that report;

 “The market is affording XM a market valuation of $8.1 billion. Under our Base Case scenario (which equates to current projections), we think the Company is worth approximately $4.9 billion today. We do not believe XMSR could successfully implement a 15% subscription price increase in the near-term without disrupting the current level of “above consensus” subscriber additions. While we do believe XM does have a level of price flexibility before our “above consensus” unit growth case would be seriously eroded, even that favorable combination creates a share value estimate that is more than 20% below current market levels, and in our view, whatever favorable option value there may be to justify a more aggressive investment view is overwhelmed by the more concrete regulatory and operation risks at hand. We think the risk/reward is not weighted in favor of XM’s common stock.”

 Ok, so after seeing the two reports and taking into account the disparity in shares outstanding at the time between the 2 companies 1.45 billion for Sirius and 350 million for XMSR which combined equaled 1.8 billion at the time, one has to wonder how the combined company, with 3.9 billion shares outstanding, or even with 6.8 billion combined shares out accounting for the 40% Liberty Capital preferred conversion can only fetch .95 cents to $1.00 currently.  The facts remain that the combined companies now have:

1)    More subscribers than ever before as a single entity or as separate companies

2)    Metrics are better than ever before

3)    Operational costs are lower than they ever were for the 2 separate companies

4)    Talent contracts are less costly than they were with 2 separate companies

5)    Subscriber churn has been reduced

6)    OEM contracts have been restructured/renegotiated to more favorable results for the company

7)    Synergies continue to be attained

A monopoly in their space with no direct competition

9) Paying off of high interest debt early

These are just a few of the positives that can be listed regarding the company.  Based on the current status of the company, one must wonder what is really going on.  While it is true that additional debt was incurred to get the merger of these two companies accomplished, and that is generally a negative thing;  it is easy to see that Sirius XM should be worth more in market cap and share price at this juncture.  One would have to think that at some point fairly soon, a correction in the value of the company and share price is in order specifically since debt load has been restructured and reduced, and CEO Mel Karmazin has turned the company;  by his own comments in previous conference calls;  into a cash flow growth story.  How soon analysts aknowledge the changes in the company’s business model and balance sheet remains to be seen.

 Disclosure: Long SIRI