Magazine article Variety

Sirius Rabid for Stock Buyback

Magazine article Variety

Sirius Rabid for Stock Buyback

Article excerpt

Back from the brink of bankruptcy, the satellite radio giant is on the hunt for $2 billion of its own shares and a new CEO

FOR A COMPANY that was just hours away from bankruptcy about 18 months ago, SiriusXM Radio has come pretty far. And it's about to go even farther. * After experiencing soap opera-esque shifts in power dynamics over the past two years, the satellite radio giant is on a hunt for a new CEO following the departure of Mel Karmazin. Sirius is also preparing to repurchase up to $2 billion of its own stock (or 10% of its total shares) over the next 12 months, and potentially another $2.5 billion in 2014. * That move will result in a massive transformation of the company's capital structure, and potentially drive the long-term direction of its stock price. * After nearly a decade of red ink, the company actually has some cash to spend on itself. But it needs more cash to achieve its goal of buying back even more stock down the road.

Sirius has enough liquidity and implicit permission from its current lenders to buy back roughly $2 billion of its own stock by June 2014. But a lack of access to cash isn't what's stopping Sirius from doing this faster. Rather, it's the lack of permission to do so from its existing bond holders.

Onerous conditions forced Sirius to borrow money when the company stood on less sure footing, and unfriendly capital markets didn't help. Combined, those factors restricted how much money Sirius could spend on its own stock repurchases. In 2010, the company's recurring free cash stood at $100 million. By 2015, RBC expects that number to rise to more than $1.2 billion.

As a result, despite a business and balance sheet that would allow Sirius to borrow money, Sirius can't tap the dry powder that would allow it to accelerate its stock buyback.

Sirius will probably renegotiate those covenants in one of two ways: Get a waiver from the existing bondholders, or refinance those bonds. Either action will come at some cost, but in the scheme of things, that cost won't be a gamechanger.

If this is accomplished, it could enable the company to repurchase more than $2 billion of stock in the current calendar year, and as much as $4.5 billion in total by the end of 2014. This would be an astounding feat for a company that seemed to be staring at the edge of the financial abyss in 2008.

The bigger question is whether this change will happen in the next year, or if it might take up to two years.

Share buybacks are a popular trend among media companies right now - Viacom, News Corp., Time Warner and others have bought back billions of dollars in the past year alone.

The trend represents a come-to- Jesus moment the industry seems to have had over the past three or four years. When the markets were flush, extra money often led to acquisitions. As the country has struggled to recover from the 2008 financial collapse, the heads of media congloms have realized that they're being judged by their stewardship of capital, because you never know when the next financial meltdown will hit.

More important, if investors are not afraid of a firm making a bad acquisition, they're more inclined to buy its stock.

A company's own stock is one of the cheapest things it can buy. It's better than buying something else, unless that something else is incredibly strategic.

Therein lies an issue for Sirius: There's really nothing out there that makes a lot of sense for it to buy. …

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