Sirius XM: The Beginning of the End or the End of the Beginning?
by John Paczkowski
Posted on February 5, 2009 at 7:30 AM PT
Sirius XM Satellite Radio is having its best day at market in recent memory thanks to a report claiming EchoStar has been buying up its maturing debt in preparation for an attempt to gain control of the company. Shares in Sirius are up more than 28 percent at 18 cents on The Wall Street Journal’s claim that EchoStar recently acquired part of a $300 million tranche of Sirius debt that matures on Feb. 17.
Clearly, EchoStar (SATS) is not so addled as to think it can make money on that debt. So the company is either making an investment in Sirius (SIRI) with an eye toward some sort of strategic future arrangement (the two companies have worked together in the past) or it’s amassing debt as a means of taking control of Sirius. If Echostar were to buy up more than 50 percent of the struggling satellite radio operator, it could force Sirius into bankruptcy, swap its debt for equity and take control of the company. The first scenario is certainly plausible, but the second seems far more likely.
“The issue, I think, is that [Sirius] is potentially a very valuable franchise with a unique quasi-monopoly position in the automobile,” said Sanford Bernstein analyst Craig Moffett. “The company is starved of capital but not starved of potential growth. An investor with sufficiently deep pockets can buy what is potentially a very attractive franchise on the cheap.”
