Karmazin still sees growth in 2009


Sirius XM CEO Mel Karmazin reaffirmed to shareholders his claim that the company will grow revenues and turn EBITDA positive to the tune of $300 million in 2009. And he reduced the expected 2008 EBITDA loss from $300 million to only $200 million. Shareholders overwhelmingly approved a reverse split and authorization of lots more shares so the company can restructure its debt.

In his presentation to shareholders, which was also filed with the SEC, Karmazin spelled out details of how merging Sirius and XM will produce $425 million of savings in 2009. The biggest chunk, $150 million, is in reduced spending for sales and marketing. The programming savings is $60 million and general and administrative $50 million. The rest comes from various expense lines.

The CEO is still projecting that 2008 revenues will be $2.4 billion, which is more than what some Wall Street observers think will actually happen. Karmazin is so pleased with the benefits already achieved from the merger that he says the EBITDA loss for 2008 will be $200 million, a $100 million improvement over the company’s previous projection. He sees revenues rising to $2.7 billion in 2009, with positive EBITDA of $300 million – the first positive EBITDA ever for a satellite radio company.

With the merger complete, Sirius XM is now focused on its balance sheet. The company says JP Morgan and Evercore are working on an overall financing plan. Sirius XM says it is working on operational improvements, talks with existing debt holders and discussions with potential new investors. The plan is to have the complete financing overhaul done by March 1st. $210 million of debt comes due in February, $350 million in May and $433 million in December 2009.

To facilitate a reworking of its balance sheet, Sirius XM had asked shareholders to authorize the issuance of 3.5 billion new shares. At the same time, they were asked to give the board of directors authority to enact a reverse stock split ranging from one share for 10 to one share for 50. That would get the depressed stock price back up to Nasdaq minimum standards for listing. Both measures were overwhelmingly approved – CNBC said by some 75% of the shares voted. The company said 87% of its shares were represented at the meeting. The members of the board of directors were also re-elected.

The shareholders meeting was hardly a love-fest. Dissident shareholder Michael Hartleib, who had sued the company and established SaveSirius.org, said Karmazin took questions for two hours, mostly from people opposed to the reverse stock split and other management actions. "We caused a lot of trouble," he said. The opponents unfurled 16 banners — eight urging a no vote on the reverse split and eight promoting the group’s website.

"You’re making excuses for everything," Hartleib said he told the CEO after hearing how the economy was affecting the company. Hartleib said the problems at Sirius XM began well before the economy tanked.

Hartleib is still making plans to renew his lawsuit, but he’s now worried that the company will beat him to the courthouse. He claims to have information that Sirius XM has begun work on a pre-packaged bankruptcy filing.

RBR/TVBR observation: Let’s do the math. 3.5 billion new shares times the current stock price still comes up short of a half billion bucks – and Mel has to refinance nearly a billion bucks worth of debt in 2009. He should have no problem handling the $210 million that comes due in February, but beyond that it becomes more difficult and some of that debt will have to be refinanced as debt, not converted to equity.