XMSR-Sirius Marriage Will Test Investor Patience

Includes: CCU-OLD, SIRI
by: Faisal Laljee

As predicted by some analysts and market mavens these last few weeks, Sirius (NASDAQ:SIRI) and XM (XMSR) announced plans to merge earlier this week. Both stocks were up modestly over the last few days, and Wall Street views the chances of the merger being approved by government regulators at about 50%.

Meanwhile, I don't think the stocks need to be bought here. The merger will take at least the rest of 2007 if approved, and cost savings will be realized sometime in 2008-09. Until then, these stocks will keep trading sideways. Nothing to write home about.

In the long run, the beneficiaries of this merger will be consumers who will get more content - although for what price, we don't know - along with advertisers, who can reach a larger audience but not pay as much as they would have normally paid individually to Sirius and XM.

One aspect of this merger that would be interesting to look at is how it would impact the rest of the radio business. Companies like Clear Channel (CCU-OLD), are highly leveraged to the radio business, and the last few years have not been too kind to this company with the advent of satellite radio. The last 5 years have seen shares of CCU decline 30% despite recent gains and the broader market advance. If and when XM and SIRI merge, companies like CCU could face advertiser withdrawal issues.

On a final note, Holland Cooke, a radio analyst from McVay Media seemed convinced that the merger would not happen in his interview yesterday with MarketWatch.com. I believe he is wrong. He also suggested that subscribers might get cold feet and drop their subscriptions, although why they would do that is anybody's guess. The sheer possibility of the merger will in fact attract more subscribers to commit to one or the other parties, knowing that they could get up to double the programming at some point.

XMSR v. SIRI 1-yr. chart: