1.25 Billion Reasons to Buy Sirius XM
Dec 5th 2012 6:50PM
Updated Dec 5th 2012 6:52PM
Sirius XM Radio (NAS: SIRI) is taking advantage of low rates to raise a lot of money. It's easy to see what the company is going to do next.
The satellite-radio provider announced today that it entered into a five-year senior secured revolving credit facility with access to borrow a cool $1.25 billion. Sirius XM isn't tapping the line just yet, but it did point out that the funds can be used for working capital and other general corporate purposes that include share repurchases, dividends, and the financing of acquisitions.
Repurchases? Dividends? Acquisitions? Only one of those three options makes sense -- and it's not the trendy push for dividends. Forget acquisitions, too. Sirius XM has repeatedly pointed out that there are no attractive buyout candidates that would move the needle.
Pandora (NYS: P) after its 17% plunge is interesting. Its market cap has dropped to nearly the amount of Sirius XM's new credit line. Pandora's problem all along has been getting its 59.2 million active users to pay up as premium accounts, and that's something Sirius XM excels at. But there won't be a buyout. Sirius XM's stock would take too big a hit to even consider the logical synergies.
Dividends? Sure, Costco (NAS: COST) recently agreed to take on $3.5 billion in new debt to bankroll a $3 billion distribution. However, something tells me Sirius XM doesn't want to take on new debt with nothing to show for it after the fat checks have been cut. Besides, even if it were to distribute the entire $1.25 billion, would investors really want the small $0.20-per-share one-time dividend given the roughly 6.5 billion shares outstanding?
Besides, the clock is ticking. There's no point in declaring a special dividend after tax rates shoot higher on qualified dividends come January, and there may not be enough time to get it done in December.
That leaves us with stock repurchases, but even they may not happen right away. We're still waiting until Liberty Media (NAS: LMCA) receives regulatory approval to take majority ownership control of the company. After that happens, being armed with funds to make aggressive buybacks will be useful if Liberty Media spins off its stake to shareholders. Snapping up stock in the open market would be a smart way to counter float glut.
So don't wait up for a special dividend or an acquisition spree. This credit line will be tapped when the moment is right to begin returning money to stakeholders in the form of stock buybacks.
It's an easy bet.
Running of the bulls
I recently put out a premium report on Sirius XM Radio, detailing the challenges and opportunities that await investors that are both long and short the dynamic media giant. A year of updates is also included with the report. Click here to check it out now.
The article 1.25 Billion Reasons to Buy Sirius XM originally appeared on Fool.com.Longtime Fool contributor Rick Aristotle Munarriz owns shares of Liberty Media. The Motley Fool owns shares of Costco Wholesale. Motley Fool newsletter services recommend Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.