Sirius Shareholders Approve Reverse Stock Split To Ease Debt
This story was written by David Kaplan.
Sirius (NSDQ: SIRI) Satellite Radio shareholders have approved the issuance of up to 3.5 billion more shares for a reverse stock split, as the company tries to gain to flexibility to pay down its crushing debt, according to a report that aired onn CNBC. The plan increases the amount of common stock from 4.5 to 8 billion, splitting Sirius' common shares by a ratio between 1-for-10 to 1-for-50. Secondly, the reverse split would reduce the number of outstanding shares to a range of 65 million to 320 million shares from the current 3.2 billion shares.
However, WSJ contended that Sirius' plans wouldn't provide much help. Considering that Sirius' shares were trading around $.14 by early afternoon, the extra shares wouldn't even be worth half of the roughly $1 billion in debt due to mature next year. The first payment on that is due in February. Sirius execs hope that a stock sell-off would provide enough capital cover the obligation if the company can't refinance its debt. Furthermore, share prices typically fall just when new stock is issued as it dilutes existing holdings.
And while revenue grew 16 percent in Q3, investors have been worrying about how the auto industry's woes would affect Sirius, which has aggressively over the years to get its car makers to provide its radio service as a factory-installed option. Throughout the fall, CEO Mel Karmazin has tried to allay fears about the company's vulnerability to the car industry, while offering reassurance that execs were communicating with Sirius' creditors and insisting that the merger with rival XM Satellite Radio will help bring down costs.
By David Kaplan