Sirius XM Holdings Inc. (NASDAQ:SIRI) has been approached by some of its investors, to privatize Sirius XM Canada Holdings, which is partially owned by the company. SIRI has officially confirmed the news and stated that it was in the initial phase of talks. Newspaper reports suggest that the deal could be valued at about $538 million or C$4.25 per share. It should be noted here that SIRI has a 32% share in Sirius XM Canada Holdings.
Following these initial reports, the stock of SIRI started to surge in the market and was last trading at $3.46. Sirius XM Holdings has seen some revenue growth and improved profit margins, during the past few months. However, investors have started to lose interest in the stock, owing to a weak operating cash flow. Fortunately for SIRI, the privatization deal could very well be the answer to some of its major problems. The cash from the deal would help Sirius Holdings to improve its operating cash flow and with a smaller company, the resources would be better managed.
Furthermore, not all of the fears surrounding SIRI would result in a negative impact. This is evident in the customer conversion rate, which fell below 40%. The figures indicated that less than 40% of new car owners did not renew their subscription after their free trial. However, the figures do not take into account that automakers are now installing satellite radio in economical models as well, the owners of which cannot afford to pay for satellite radio. In reality, the subscriber count for SIRI is growing, despite falling conversion rates.
Apart from the company’s overall performance, the privatization of its Canadian wing could also open the doors for much larger companies to acquire SIRI. One of the prime contenders for this deal is Liberty Media, which already holds 61% stake in Sirius Holdings. A much smaller company, with the potential to rake in large revenues could be an ideal addition to Liberty Media.
Sirius XM Holdings Inc. (NASDAQ:SIRI) closed trading at $3.46 per share, after gaining 2.37%, during the February 12 session.