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Sirius Shuffles Stock Ownership Deck With Financing

By | June 9, 2003

      Sirius Satellite Radio [Nasdaq: SIRI] is not letting the absence of a chief financial officer stop it from pursuing vital financing deals.

      On the heels of completing a $175 million offering of convertible notes, Sirius moved last week to sell 75 million shares of common stock. The stock sale, contingent upon market conditions, has not been priced nor have terms been determined yet, company officials said.

      Morgan Stanley would be the stock offering’s manager, while UBS Warburg would co-underwrite the transaction.

      The stock offering would dilute the value of Sirius’ existing shares by 7 percent, according to a research note from Bob Peck, a satellite analyst at Bear Stearns. Proceeds from the stock sale could approach $150 million, he estimated. Proceeds would go mainly to ramp up Sirius’ original equipment manufacturer (OEM) rollout, boost advertising of OEM and other marketing initiatives, and obtain new programming content, Peck explained.

      Peck wrote that Sirius’ business plan was fully funded prior to the new OEM rollout initiatives. Sirius is hoping that the OEM rollout will jumpstart its sales. Sirius has fallen far behind rival XM Satellite Radio [Nasdaq: XMSR] in vehicle models that offer its satellite radio equipment as a factory installed option.

      “If the proceeds of this deal can prod Ford [NYSE: F], Chrysler and BMW to re-tool their factory lines to install the radios, this could be a big positive for Sirius,” Peck wrote in a June 4 research note to his clients. “We would then expect an announcement by the OEMs on factory installation plans along with models and estimated number of cars in the near future.”

      New content deals for Sirius would be an “exciting” development, since many investors have speculated that both satellite radio providers need to differentiate their content from terrestrial radio to drive subscriber growth, Peck wrote. Sports, live entertainment and other programming aimed at young people are three potential sources of content, he added.

      In a separate transaction, Sirius indicated that The Blackstone Group and its affiliates are considering transferring up to 57 million shares of Sirius common stock to Blackstone’s limited partners. Blackstone’s equity interest corresponds to approximately 6.3 percent of Sirius’ current outstanding shares and would be freely transferable by the limited partners. Affiliates of Blackstone also hold warrants to purchase an additional 42 million shares of Sirius common stock at an average exercise price of 99 cents a share. Blackstone has not advised Sirius of its plans with the warrants.

      Sirius also last week named a new board member, tapping Michael McGuiness, 39, to replace Joseph Vittoria, 67, who had served on the board since April 1998. McGuiness is a portfolio manager for W.R. Huff Asset Management, an investment advisor, private equity boutique and large independent manager in the high-yield market.

      Meanwhile, Sirius is continuing to move closer to hiring a new CFO to replace John Scelfo, whose last day at Sirius was April 6. Scelfo played a leading role in arranging Sirius’ $1.2 billion recapitalization in March.

      –Paul Dykewicz

      (Bob Peck, Bear Stearns, 212/272-6665; Jim Collins, Sirius Satellite Radio, 212/901-6422)

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