Sirius XM share price for Thursday noted in this update.
NEW YORK (
investors can breathe a sigh of relief: It appears the satellite radio provider's stock will not be delisted from the
when the company meets with the exchange for a discussion next week. That, some argue, could provide a floor for Sirius XM's share price.
shares have closed above the $1-per-share mark for six consecutive sessions ended April 21, which has helped to assuage fears that the company could face a delisting on April 29, when it will meet with a Nasdaq hearing panel.
For now, a scenario of the stock falling to the Over-The-Counter Bulletin Board or Pink Sheets seems to be off the table.
"This is an unprecedented situation with a stock close to penny-stock levels but with a multibillion market cap," says Jack Hain, an analyst with Barrington Research Associates. "That doesn't happen."
Hain says that with few foreseeable negative catalysts on the horizon to drive the stock down, Sirius XM's delisting troubles may be a thing of the past.
It wasn't always clear that Sirius XM had a good chance at beating the Nasdaq's minimum big price requirement. While the stock did manage an eight-session string of above-$1 finishes in late February, Sirius XM hasn't finished above $1 for 10 consecutive sessions since Sept. 9, 2008.
If a stock closes below the $1 mark for 30 consecutive business days, it is granted a grace period of 180 calendar days to regain compliance with the Nasdaq's listing requirements or face delisting. To regain compliance, a stock like
would have to close at or above $1 for a minimum of 10 consecutive trading sessions.
Sirius XM had been granted a 180-day grace period after receiving a warning letter from the Nasdaq in September 2009. As the stock failed to regain the $1 mark for a sustained period of time, the Nasdaq sent a second notice to the company after a March 15 deadline passed.
Sirius XM immediately requested a hearing with the Nasdaq's Listing Qualifications Panel, which put off any action on the stock's continued listing. When confirming plans to ask the exchange for a hearing, Sirius XM CEO Mel Karmazin laid his cards on the table.
"Sirius XM is one of the most liquid securities on the Nasdaq Global Select Market, we have a large investor base consisting of both individual and prominent institutional stockholders, and our equity capitalization is greater than approximately 92% of the companies listed on the Nasdaq Global Select Market," Karmazin said in a statement.
Funnily enough, April 29 could potentially be the day that Sirius XM will say the stock has closed above $1 for 10 consecutive trading days, which becomes another bullet in Karmazin's chamber. On Thursday, Sirius XM was down 3.6% to $1.06, as the broader market sold off.
But in even simpler terms, it seems obvious that the Nasdaq would be crazy to delist a stock that is typically among the most traded on that market daily.
The Nasdaq collects a fee from Sirius XM to keep its stock listed. Sirius XM did not respond to a request for information on the fees it pays to the Nasdaq, but according to a
Nasdaq listing standards and fees
notice from March, a company like Sirius XM, which trades on the Nasdaq Global Select Market and has more than 150 million shares outstanding, pays an annual fee of $99,500 for continued listing.
"The Nasdaq definitely has an economic interest in seeing Sirius XM remain listed," says Matthew Harrigan, an analyst with Wunderlich Securities. "They benefit economically from trading activity. The average volume is close to 180 million shares a day. It's integral or material to the economics of the Nasdaq. And it's certainly not like they're manipulating anything. It's a viable company that should be listed." Harrigan has a neutral rating on Sirius XM and a price target of $1.
Tuna Amobi, who covers Sirius XM for Standard & Poor's Equity Research, cautions that while a delisting on April 29 is unlikely, there still is a chance that the Nasdaq could bounce Sirius XM from the Global Select Market as it has done in to other companies with well-known companies.
"With the way the minimum price rule has been applied in the past, I think the Nasdaq is blind to whether a company is supposedly iconic or not," Amobi says. "There were several top 10 broadcasters, like Westwood One, that have been delisted in the last few years as a result of this bid price rule."
Even if the stock stays listed on the Nasdaq, the question of a reverse stock split still lingers for Sirius XM investors. There is, however, good news. Despite the negative connotation of a reverse split, as well as Sirius XM's assertion that it will effect a reverse split only if it determines the action to be in the best interests of stockholders, some analysts say that the pros certainly outweigh the cons.
"It would serve the shareholders' interests well to do the reverse split anyways," Barrington's Hain argues. "There are nearly 4 billion shares outstanding and even more on a fully diluted basis. That's an egregious number of shares outstanding. That's the real issue." Barrington Research has an outperform rating on Sirius XM and a $1.25 price target.
Hain says that it is typical for some information content to prompt a reverse split, such as the share price has declined consistently over a long period of time and the reverse split is a means to an end to try to maintain listing. "Clearly, we're not in that type of situation here, and for that reason I don't think a reverse stock split should be viewed through that filter," he says.
A reverse stock split would artificially raise Sirius XM's share price to a level that would entice more buyers, such as institutional buyers and mutual funds.
"It would open it up to more investors if they did a reverse split," says David Joyce, an analyst with Miller Tabak & Co. "The benefit would be to make it a more palatable price point because there are some institutions who cannot invest in stocks with prices under $5 or under $1. That's not a fundamental call but a pricing level restriction in their own investing charter." Joyce has a neutral rating on Sirius XM and a $1.25 price target.
Of course, given the negative connotation by market participants, a reverse split comes with a downside. S&P's Amobi says that a reverse split is a gamble for a company like Sirius XM and that its management team is probably still calculating the pros against the cons.
More on Sirius XM
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"You can attract more institutional investors who might be restricted by the very low share price. The company realizes that, and they're weighing it against the negatives, like the short-selling it could trigger," Amobi says. "Even if you went up to $5 or more, I don't think all institutional investors who were prohibited before are going to rush in. Risk tolerance could still be a factor."
At the very least, subsiding delisting fears may help establish a floor for Sirius XM's share price.
"You can debate how much upside there is, but it becomes a bit like a self-fulfilling prophecy," says Wunderlich's Harrigan. "If the stock stays above $1, it becomes more desirable for certain people."
-- Written by Robert Holmes in Boston
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