Could One of These 3 Companies Buy Out SiriusXM in 2012?
Robert is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Sirius XM (NASDAQ: SIRI) could be bought out -- after all, everything is for sale. This begs the next practical questions for investors: Who would buy it out, how and why? The how is taken care of by the currency of the market -- whatever company seeking to purchase Sirius will strike a deal in cash, stock or debt, or some combination, depending on what the market will bear. The who is answered by figuring out which company would benefit the most from the acquisition, which answers the why. While I am sure there are a number of companies in a similar space, the list of possible buyers will be limited to the tickers included above.
Liberty Media Corp. (NASDAQ: STRZA) trades around $85. Its year high is $104.34, the year low is $58.51. It has a price earnings ratio of 6:51 and earnings per share of $13.13 The company has cash of $1.15 billion and debt of $750 million. Liberty already owns 40% of the company, which it purchased in 2009. It has been made clear that Mel Karmazin, CEO will abandon Sirius if Liberty purchases the company. Part of Sirius' survival has been dependent on Karmazin who has helped the company weather the storms of poor economy, capital markets debacles, near insolvency and the fickle tastes of content consumers. The loss of his direction at the helm may be a very negative development. The question of why Liberty would want to own 100% of the Sirius is hard to answer. Liberty Media's holdings consist of many different content providers and service carriers who can provide revenue streams across a broad spectrum in the media space. To purchase 100% of Sirius does not seem to be part of the overall plan for Liberty Media. The stock is not behaving like one that is on the hunt for new acquisitions. The volume of 838 million over three months is not remarkable for a company of this capitalization. The short interest is 1.3% of the float. It seems that the short interest would be higher if speculators thought the company was going to make a major expenditure for an acquisition. However, if it is part of the plan, it could probably just call the loans of approximately $530 million which would impact the share price of Sirius and make it an attractive buy at a low price.
DirecTV (NASDAQ: DTV) trades around $42. It has year high $53.40 and year low of $39.82. The price earnings ratio is 13:15 and EPS is $3.21 as of last quarter 2011. DirecTV has total cash of $1.3 billion and total debt of $13.46 billion. In 2008, Liberty Media spun of a 50% ownership of DirecTV into separate entity, Liberty Entertainment Group, SA. What followed was the merging of DirecTV into one trading entity making it easier for the CEO of Liberty Media, John Malone to trade the stock for acquisitions in the future. It seems as if this foreshadowed a possible acquisition of a company like Sirius. It may provide a more integrated company in that DirecTV will acquire original content and packaged programming in a different media space and be less reliant on the cable subscription business. The diversification into satellite radio and the revenue streams from deals tied into the Sirius web site and revenue from car radio subscribers will provide a broad spectrum of revenue sources. In 2001, Liberty Media was spun off from AT&T as a part of a restructuring separating AT&T's cable wireless and corporate and consumer businesses. If DirecTV is a contender as a purchaser of Sirius, it seems as if the company might be evolving or revolving back into a more consolidated media/cable/wireless and consumer business entity.
Pandora Media Inc. (NYSE: P) went public in July, 2011. It currently trades below its IPO price of $16 at around $13. Since the IPO it has traded at a high of $13.18 and a low of $12.10. There is no trailing twelve month information on the price earnings ratio. The earning per share as of the third quarter 2011 were negative at ($0.22). It has a cash position of $90.8 million. Pandora is operating with low debt. It has a $30 million credit facility secured by receivables but not intellectual property. It paid off all of its $7.6 million in debt from the proceeds of the IPO. It may be in a able to take a run at Sirius because of its cash holdings. Pandora is solely a music provider and may be the biggest competitor in the music only space to Sirius. Pandora does not provide talk, news, market reports, or lifestyle programming. Pandora could view Sirius as having assets that would add value to its shareholder base. The benefit to Pandora is the expansion of its programming and subscriber base. The acquisition of Sirius would create a lock on the satellite radio business with each of these companies having deals to provide major automakers with satellite radio. One roadblock to Pandora is getting Liberty Media's 40% ownership out of the way, and that may prove to be a difficult task.
Sirius XM Radio trades around $2.14 has a year high of $2.44 and a year low of $1.27. It had third quarter 2011 earnings of $0.03 per share. It has $604.59 million in cash and $3.03 billion in debt. Its book value per share is $0.16. It had revenue of $695 million in Q3 2011 up from $645 million in Q3 2010. Corporate news releases indicate an interesting and dynamic line up of shows, including national news, talk shows interactive kids programming. Sirius added 1,700,000 subscribers in 2011. Sirius expects robust growth in 2012 from $2.97 billion in revenue in 2011 to $3.03 billion in revenue for 2012. To some extent, the growth anticipated is dependent upon the continued building of the subscriber base through its sales in the auto industry which are in turn dependent on global macro-economic conditions. At the price levels of $2 to $2.15 per share it trades athigh volume in the billions of shares per month. The low price does account for some of that but there is a lot of speculation about the future of Sirius as the short interest is 7.8% of the float and the number of shares short as of December 30, 2011 was 301.38 million up from approximately 299 million from the prior month. Despite its debt situation, I have stated before, the market knows something about this stock. Time will tell what that something is.
The Motley Fool has no positions in the stocks mentioned above. Vatalyst has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.