Sirius XM Radio (NASDAQ: SIRI) did something rather unusual if you consider its recent downward trend.  Its shares rallied close to 30% today.  Sure, you have to consider how low shares had gotten and take into consideration how little this means in raw dollar gains.  But you also have to consider the meat here and why this would happen.

Last week we discussed how lucky the company is that NASDAQ has pulled its $1.00 ejection button from the listing requirements.  Everyone, and that includes us, has commented how the company is drowning in debt.  But its debt financing that looked so high when it was made actually looks pretty cheap considering the levels we have seen investment grade and "AAA-rated" issuers have accepted in recent weeks.

We have refrained from printing some of the crazy rumors out thereabout the company.  But when we see gains of this percentage (even in apenny stock) on a bad market day, it makes us wonder if there mightfinally be some meat to the gossip.  There are two issues which couldcome into play and both have been subject of chatter.

The first such market talk has Mel Karmazin leading a "go-private"MBO.  Karmazin has bought shares in recent months when he could.  We have yetto find a single shred of proof that this would occur, and we have notfound anyone credible who actually believes this is in theworks.  Even after the massive sell-off in share prices, Karmazin mightnot be able to raise the cash in today’s no-credit environment.  Canyou imagine the debt assumption on top of the existing debt and on topof the existing capital needs that it faces in the near future?

The other possibility here is that the company would consider a reversestock split.  Karmazin has said that Sirius would consider anything in response to a David Faber question about a reverse stock split,and at current share prices he might not have much choice.  The problemis that we believe most traders and investors would join the trend ofrecent reverse stock splits with the cheers of "Yeah! We get to shortsell this stock all over again!"…

An issue to consider here is that there have been more rumors over thelast 6 or 7 years with many technology and media companies beingrumored as possible suitors of either Sirius or XM.  None have evermaterialized.  The only reason to even mention it today is that thecurrent price would allow some buyers to snap this up for a song ifthey have ample capital or if they can easily access capital needed tofund the operations. 

If Karmazin has something special up his sleeve, we’ll know soonerrather than later.  The things that may have been responsible fordriving this up seem hard to fathom, but we have always believed thatthe market speaks louder than personal opinion. 

A 30% gain to $0.38 doesn’t even come close to recapturing the personalfortunes which have been lost by investors in this cult stock.  But formany, this may be the first round of hope in a while.

You can join our open distribution list to hear about other similar situations and previews for our newsletters of special situations or stocks under $10.00.

Jon C. Ogg
October 27, 2008

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