Shareholders stand to get nothing if the satellite radio company files Chapter 11 to thwart a takeover by EchoStar. Sirius XM’s stock lost more than half its value in Tuesday’s trading, closing down 51.7% at six cents per share. The question, though, is whether the stock is worth anything at all.
There don’t appear to be any good options left for Sirius XM shareholders. According to the Wall Street Journal, even if EchoStar CEO Charlie Ergen makes a takeover bid for the company, he doesn’t intend to offer anything to buy out existing Sirius XM shareholders. They would just be diluted (a lot) as EchoStar converted its stockpile of Sirius XM debt to equity and injected some cash into the satellite radio company. Should Ergen succeed in operating the company profitably – something that no one else has yet been able to do – the shares might eventually be worth more than the few pennies they command today.
On the other hand, if Sirius XM CEO Mel Karmazin takes the company into federal bankruptcy court in a Chapter 11 reorganization, shareholders would almost certainly be wiped out completely. With its staggering pile of debt, the company would either end up being owned by its creditors – including EchoStar – or auctioned off to the highest bidder and the proceeds distributed to the creditors.
Under the first scenario, the shares of Sirius XM aren’t worth much, if anything. Under the second, they are absolutely worthless.
OK, what else could happen? How about bringing John Malone into the mix? The New York Times online "DealBook" reported late Wednesday that Karmazin is talking to the Liberty Media mogul about a possible deal to save Sirius XM from Ergen’s grasp. It is hardly a coincidence that Liberty Media is the primary owner of DirecTV, the main competitor to Dish Network, a company closely related to EchoStar and also run by Ergen.
Just what kind of offer Malone might put together isn’t clear. Ergen, though, has an advantage because he already owns a big chunk of Sirius XM’s debt.
Regardless, the soap opera still has to play out. With $175 million of bonds coming due next Tuesday (2/17), Karmazin will have to make up his mind soon on which course to pursue.