A reader named Brett from Califon, N.J. responds to The Wall Street Journal's Martin Peers column, "HEARD ON THE STREET: Sirius About Staying Aloft":
I am a Sirius (SIU.AU) shareholder who would be fully in support of Mr. Charlie Ergen finding a way to convert some of his recently acquired bond holdings into common shares, even if it risks some dilution to common shareholders.
The company badly needs an influence that unlocks the value inherent in the company's shares through a modern business plan. Mel Karmazin has been unable to think outside the box that the merged Sirius XM put itself into which is a highly leveraged, high fixed-cost business, facing a weakening economy that can no longer rely on growth in auto sales or sales of aftermarket radios.
While Sirius XM has an installed base of roughly 8.6 million paying subscribers, it is the installed base of satellite radios which are not turned on that represents the opportunity for growth and profitability. This number of radios which the company has subsidized over the years, depending on the estimates, may be as high as 6.5 million. It's time someone who understands value comes in and takes advantage of this capital investment the company has already made.
In my opinion, if the company simply allocated a total of 5 stations from its pay spectrum for free distribution (One each for News, classic rock, contemporary rock, country and talk radio) and sold advertising like traditional terrestrial radio does, it would virtually overnight create a large national footprinted group of stations that would be quickly cash flow positive, technologically feasible with Sirius's installed technology, and, in my opinion, not predatory on its existing pay business.
There are two realities to Sirius's business. The first is that the company has a huge untapped asset in its installed-but-not-turned-on radios and the second is that an overpaid management team that won't evolve will run it into bankruptcy.
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Here's the original column:
By Martin Peers
A Dow Jones Column
Mel Karmazin undoubtedly hasn't forgotten the four tumultuous years he spent shacked up at Viacom with Sumner Redstone. So it's a good bet the CEO of Sirius XM Radio doesn't fancy the prospect of working for another strong-willed mogul: Charlie Ergen.
For that reason alone Mr. Karmazin is sure to spend the next 10 days searching high and low for $175 million he needs to pay off bonds held by Mr. Ergen's Echostar Technologies. Otherwise he faces the prospect of Echostar trying to muscle its way to at least partial control of Sirius.
Don't bet against Mr. Karmazin. Beneath the roughly $3.2 billion of debt now dragging the satellite radio company back to earth lies a decent business with around 19 million subscribers. Cost cuts flowing from last summer's merger of Sirius and XM should take the company nearer to profitability - although the recession will hardly help.
Sirius could prove attractive to companies like Verizon or AT&T, both of which have national wireless footprints that might dovetail with a satellite-radio service. Liberty Media could also be sniffing around.
Still, Sirius needs serious money. Leaving aside next week's bond maturity, the company has $350 million in bank debt due in May and another $400 million in bonds due in December. Without the means to deal with those maturities, paying off next week's bonds only buys a little time.
One thing is sure. Having sunk $2.7 million into Sirius stock just last August, Mr. Karmazin will be keen to avoid a Sirius bankruptcy filing. If he has to yield to Mr. Ergen to avoid that, he likely will. Then Wall Street can settle in for a new clash on the corporate airwaves.
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(END) Dow Jones Newswires
02-06-09 1315ET
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she's whitewashed
