By Relmor Demitrius

Mel and Howard

There are many ways to identify and define success.  The same can be said about worth and value.  It is especially true when trying to apply these concepts to something intangible, as an artist or performer.  Take a talent like Howard Stern.  He’s not a hard asset that you can simply attach a known value to, or state exactly what he would mean to your company.  What is his actual value to Sirius XM Radio (NASDAQ:SIRI)?  When Greg Maffei (CEO of Liberty Media and Liberty Capital (NASDAQ:LCAPA) and 40% owners of Sirius XM, ask Mel Karmazin (CEO of Sirius XM) how much is Howard Stern worth to the company, what does he tell him?  This is the debate among bloggers to professional financial analysis that has been going on for years.  How do you evaluate Howard Stern’s actual value to the company?  He makes 100 million dollars a year, minus the cost to run his show.  Is he worth it?  Is he overpaid?  Is he underpaid?  Is he fairly paid?  How much of Sirius XM’s revenue can be attributed to him.  In this article I will go over the effect of signing Howard Stern to Sirius Satellite Radio and any effect overall he had on the satellite radio industry altogether.  First, let’s get some opinions out of the way.

Howard Stern is an amazing talent and still the best radio on radio.  No offense to Michael Savage fans, Rush Limbaugh, Opie and Anthony, or Larry King.  Whatever.  There is still no bigger celebrity in radio.  Rush is close, but I don’t think he even can match Howard still to this day.  Howard’s popularity may be waning but he is still the best.  That being said, let us leave the personal opinions and feelings at the door.

(more…)

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 Relmor Demitrius

Greg Maffei

Sirius XM Radio (NASDAQ:SIRI) is offered many opinions of what their shares are actually worth.  It just depends on who you listen too.  There seems to be a vastly different view of just how much one should pay for this equity and ultimately what is their appropriate market cap.  If readers know my style, they know I do not work with subjectives or opinions.  I like cold hard facts when I tackle a problem.  The pulse of the investor community seems to be right now on trying to understand how an equity so obviously undervalued is still priced at $1 a share.  What is Sirius XM’s real fair value?  Well why waste a second longer, let us begin.

Without boring anyone on just how dangerous it is to attempt to use the stock market current price at any one time to try to determine actual retail sale value of a company and hence what one share is actually worth in reality (meaning if every share were to be purchased at one time, at what price could they buy the company) might offer a little insight.  Here is a good example of this from 2008. (more…)

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

By Relmor Demitrius

One June 25th, this Friday, the Russell family of indexes will have its yearly reconstitution event.  This event adds and deletes companies on their Russell index’s and tracking funds. Sirius XM Radio (NASDAQ:SIRI) will be one such addition.  It is not 100% official, as the official list doesn’t come out until next Monday, but its about as sure a lock as you can get in this type of situation.  Sirius XM was listed as an addition on the first two lists released, one on June 11th and the other on June 18th.  This is good timing for a stock that has been in an uptrend now since 6/9/10.  The equity has been moving up into this planned buy. 

Russell reconstitution is usually a high volume event that can result in massive volatility of price movement on that day.  On Friday, over 200 million shares, maybe much more, must be purchased.  Last year the market dumped these Russell shares, now the company enjoys the benefit of the reverse of that scenario.  One of the best advantages of being added is these shares will now not trade anymore.  They are used for exposure, not to be traded around.  This is great news for Sirius XM investors as any reduction in the tradable float can help sustain price levels and reduce downside volatility.  I believe Sirius XM will be added to the Russell 1000, which is a list of the top 1000 companies, based mostly on market cap but not entirely, which would require even more stock to be purchased.  The more lists they are on, i.e. Russell 1000, Russell 3000, Global funds, mid cap funds, etc.. the more shares will need to become available.  It has been speculated as many as 500 million shares may be required.  But who’s going to sell them the shares? (more…)