This may turn out to be one of the biggest days in the history of Sirius XM Radio (NASDAQ:SIRI). Unfortunately, it may also be one of the failing company’s last.

It is a big day for Sirius XM Radio (NASDAQ:SIRI) shareholders. They are meeting in New York to vote on issues that may permanently affect the company and its owners.

In case you have been hiding from the recession in a fallout shelter over the past year, Sirius has encountered a big problem. It cannot succeed at the basic function of every business: make more than it spends.

With subscribers not willing to boost Sirius’ dwindling revenues, the company’s CEO, Mel Karmazin, is asking shareholders to cough up some dough. With $1 billion in debt due over the next twelve months, the company needs cash fast.

That is why it is asking shareholders for permission to issue 3.5 billion more of the company’s shares. The figure is nearly double the 4.5 billions shares the company currently has outstanding. Karmazin is willing to take on the huge amount of dilution if it means the company can stay in business for another 12 months.

At today’s depressed stock price, the proceeds of the sale would bring in just $490 million or so, less than half of what the company needs to pay its bills. That is not good.

Voting for suicide

Most equity investors realize this deal is murderous to their position. Dilution will go through the roof in order to solve a very short-term problem. Sure, next year’s debt dilemma may be erased, but what about long-term viability? Today’s vote in New York will not solve any of the company’s fundamental flaws.

There is a reason Sirius cannot get the capital it needs on the debt market. The chances of it being able to pay the money back are slim. So why should equity investors pick up the tab if bondholders won’t do it?

Unless, Karmazin and his team can promise huge returns in exchange for the extraordinary risk he is asking of investors, there is no way anybody should go near this stock.

Right now, all the CEO can promise to do with any new capital is to increase the company’s chances of survival (from zero to about 10%). Just like General Motors (NYSE:GM) is asking Washington for a bridge loan, Karmazin is asking his herd of crazed investors for enough cash to get them over the next hurdle.

If Sirius makes it through 2009, it still has an incredibly tough road ahead. No matter what the outcome, today’s meeting will mark the beginning of the company’s final chapter.

Source: The beginning of the final chapter for Sirius XM (SIRI)