Spring puts the probability that a combination of the two satellite radio companies could win approval from both the FCC and Justice Department at 55%-60%, “with market definition as the key variable. It really comes down to whether terrestrial radio and to a far lesser extent the [Apple (AAPL)] iPod are considered as competitors - there are pros and cons to the merits of each.”
A merger of the two companies could create $7 billion in shareholder value, Spring asserts. He sees “dramatic expense synergies” from a combined company.
Spring has Buy ratings on both stocks. Today he raised his price target on XM to $18 from $16.
“Absent a merger, we believe the business models of both SIRI and XMSR are viable if the companies can increase the penetration rate in new cars from ~20% now to ~70% by decade-end - a scenario in which we remain believers,” he wrote.
XM is down nearly 6% today while Sirius is off 3.5%.
XMSR-SIRI 1-yr comparison chart: