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Sirius XM Float Reduced by 200 Million Upon Lent Share Return


By Relmor Demitrius

On October 19th, 2011, Sirius XM filed a 8K report stating that in October, Morgan Stanley returned the borrowed shares in the 2014 convertible bond offering, issued in 2008. These shares were mostly the reason the deal was considered "toxic debt", as their stated purpose would be to "hedge" a bond position. The shares were shorted and Sirius XM went from $2.70 a share in 2008 to .05 cents in 2009. Since then the stock has recovered to as high as $2.44 in 2011 but has been experiencing some rough trading as of late and now trades at $1.77 a share. This is now a non issue as Morgan Stanley no longer considers needing these shares to hedge. This could have been hindering forward movement of the stock. This could help stabalize the price as well as allow higher prices to be more achievable. This removes a major headwind on the mechanics of the stock trading. As for the fundamental model, it doesn't affect anything. Here is what the filing stated.

"In October 2011, an aggregate of approximately 202,400,000 shares of our common stock were returned to us from Morgan Stanley Capital Services Inc. and UBS AG, which we retired upon receipt. After giving effect to the retirement of these shares, as of September 30, 2011, we would have had 3,749,546,009 shares of common stock issued and outstanding. This figure excludes shares of our common stock issuable upon the conversion of the preferred stock held by an affiliate of Liberty Media and other convertible securities and upon the exercise of warrants and stock options that are currently outstanding.

In August 2008, we loaned 262,400,000 shares of our common stock to Morgan Stanley and UBS to facilitate the offering of our 7% Exchangeable Senior Subordinated Notes due 2014. In July 2009, Morgan Stanley returned to us 60,000,000 shares of our common stock that were borrowed. These shares were also retired upon receipt.

We did not pay Morgan Stanley or UBS any consideration in connection with the return of the shares. Once borrowed shares are returned, they may not be reborrowed under the share lending agreements.

The shares loaned to Morgan Stanley and UBS were issued and outstanding for corporate law purposes. Under GAAP, the borrowed shares were not considered outstanding for the purpose of computing and reporting net income (loss) per common share. The retirement of these shares will have no effect on the calculation of our earnings per share. "


These shares counted in the float, could be traded, and affected stock trading. Although they were not used in calculating earnings per share, this is a big piece of news for the company and another sign that times are changing.

You will hear from the peanut gallery many authors claiming they know why this happened. You will hear fancy words like reverse morris trusts and converting shares or refinancing debt. None of these things will probably happen and ignore the maddness.

The only thing that matters is they have been returned and 200 million shares that were circulating in the float are now gone.

Nothing bad about this and it is all good news.

This also increases our P/E ratio, as those shares were temporarily counted as outstanding shares.

This also removes 80 million shares from Liberty's holding in outstanding for conversion of their 40% ownership.

In July of 2009, UBS had returned around 60 million of these shares already.  This final return closes out the entire amount lent.

So as you can see there are many reasons why this is a good thing going forward for the company. With a buyback coming in 2012, according to Mel Karmazin (CEO of Sirius XM Radio), the release of 2.0, and the upcoming new pricing tiers, 2012 should be an exciting year for investors and consumers of the product.

Disclosure: Long SIRI


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