Sirius XM Up to Its Ears in Debt

"Our current simplified forecast has Sirius XM's cash balance excluding any changes in working capital ... could decline to $90 million, which seems awfully low, especially given that we have not factored in any severance payment, merger costs, or banking costs," Horace says.

One dire prospect for shareholders is that Sirius XM will further dilute shares through future public offerings. On the eve of announcing the closing of its merger to XM, Sirius sold nearly $375 million in common stock in a fixed-price public offering, with up to another $65 million more to come later concurrently with a private offering by XM.

Thus, on a day when investors should have been celebrating the completion of the long-awaited merger, they were instead licking wounds brought on by the share dilution.

For now, Sirius XM is continuing to focus on cutting costs through synergies with the expectation it will lead to positive free cash flow. The company already is anticipating $150 million in media and advertising savings in 2009, although many analysts view that move as risky as the company needs to re-establish strength in its retail business, which has suffered as Sirius XM hams shifted attention to automotive installations.

"Sirius stated that the majority of the savings were attributable to a reduction in headcount and duplicative functions," says Horace. "We think the riskiest cost synergy that Sirius has planned for is in the media and advertising category. We have always had concerns about this particular category."

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