Satellite radio sector watchers who follow these equities closely are well aware that Directed Electronics (OTC:DEIX) is the distribution partner for Sirius Satellite Radio’s (NASDAQ:SIRI) receivers. With the merger announcement, there has been a question as to who the ultimate distribution partner of a merged Sirius and XM (XMSR) would be. This put some pressure on Directed, as there was no certainty as to how long Directed’s ties with satellite radio would last.
Tuesday Directed announced that they have extended their relationship with Sirius through August of 2008.
“While the pending merger between SIRIUS and XM has added a degree of uncertainty to the satellite radio market during 2007, as well as our agreement renewal discussions, we believe this amended agreement will serve as an excellent template for future extensions we plan to discuss after regulatory review of their merger is fully resolved in the coming months,” concluded Mr. Minarik.
Directed stock saw a 65% upward swing on the news and is now trading at $1.86 from $1.11 on higher than normal volume.
Merger watchers should not read too much into the deal. Even with a merger, the switchover to a single platform for Sirius and XM was not an immediate event, and the length of time for the a-la-carte radios to hit the marketplace seems to coincide with the expiration of the Directed contract. This could mean that the merged company is still free to negotiate with current distribution and manufacturing of both Sirius and XM.
Position - Long Sirius, Long XM, Long Directed
DEIX 1-yr chart: