Should You Buy Sirius-XM?

By Mike Caggeso

Minutes after the Dept. of Justice approved Sirius Satellite Radio Inc.’s (SIRI) merger with XM Satellite Radio Holdings Inc. (XMSR), each company’s shares soared by double-digits…

Yet, until the merger is completed, it’s hard to know whether that sharp jump will continue… whether now is a time to jump in with both feet… or whether the surge will cool on the heels of valuations soon-to-be posted by analysts, who no doubt are bleary-eyed and caffeine-drunk from crunching the numbers through the night.

So the question is, should you buy?

The answer is not an easy one. It depends on three factors.

To begin with, the merger - which was first proposed in November 2007 - still has to pass through the Federal Communications Commission, which could impose conditions that alter the agreement and/or favor the groups that lobbied heavily against it.

The FCC is expected to rule within the next few weeks. April Horace, an analyst with Janco Partners who has been following Sirius, said the FCC shouldn’t take too long to ponder.

"It’s not like this hasn’t been sitting on the FCC’s plate. It’s been there for a year," Horace said.

In its ruling, the Dept. of Justice said that a Sirius/XM merger would not violate anti-trust laws because the satellite radio providers face competition from AM and FM broadcasters, television, mobile phones and online music stores and radio stations.

Secondly, the merger still faces tough opposition from one of the most powerful lobbies in the world. Many of Sirius and XM’s competitors are part of the National Association of Broadcasters, one of the merger’s most prominent opponents. And looking at its executive committee - which includes senior managers from billion-dollar media titans such as Hearst-Argyle Television Inc. (HTV), Gannett Co. Inc. (GCI) and Belo Corp. (BLC) - it’s no wonder the DOJ investigation took so long.

"We are astonished that the Justice Department would propose granting a monopoly to two companies that systematically broke FCC rules for more than a decade. To hinge approval of this monopoly on XM and Sirius’s refusal to deliver on a promise of interoperable radios is nothing short of breathtaking," The National Association of Broadcasters said in a statement.

Third, will this merger give the combined companies the leverage they need to reduce operating costs and increase profit?

The merger would likely combine XM and Sirius’ content together for a lower price. Subscribers of both now pay $12.95 a month, but may pay as little as $6.99 with the proposed tiered pricing, Bloomberg reported.

Sirius has 7.67 million subscribers who have access to premium content that includes talent such as Howard Stern and NASCAR broadcasts. While XM’s 8.57 million listeners pay a premium for content from Oprah Winfrey, Major League Baseball and in-studio artist performances.

To fund such content and compete with each other, both Sirius and XM spend [and lose] hundreds of millions of dollars a year.

Together, they can combine their best programming and management and form a music and news medium better equipped to fight against billion-dollar competitors such as Clear Channel Communications, Inc. (CCU) and Apple Inc. (APPL).

Should you buy?

The cons outweigh the pros, said Lou Basenese, an M&A expert and editor of investment newsletters The Hot IPO Trader and The Takeover Trader.

"Don’t buy either stock, even if they finally get FCC clearance. Ultimately, share prices follow earnings. And neither of these companies have any. Combining won’t change that fact," said Basenese, who has been following the Sirius/XM merger from the beginning.

Moreover, while the premium content of each satellite radio provider is worth its suggested new price, a merger would combine the debts each station paid to have the likes of Howard and Oprah.

"Both companies overspent to acquire content in a bid to expand subscribership as fast as possible - a fatal mistake that will make sustained profitability (as independent or combined companies) impossible for years to come," Basenese said.

XM shares closed at $13.50 yesterday; Sirius shares closed at $3.09.

Shareholders already approved of the merger. More than 96% of those who voted approved the transaction in separate meetings in November, Bloomberg reported.

But again, a large part of the final deal depends on what stipulations, if any, the FCC lays forth.

News and Related Story Links:

• Wall Street Journal:
  Sirius-XM Gets Antitrust Approval
• National Association of Broadcasting:
  NAB Statement on Today’s DOJ Decision Regarding XM and Sirius
• Bloomberg:
  XM Satellite, Sirius Combination Approved at Justice

Comments

[Tom Burns]

It seems to me that NAB does not understand what a democracy is.Their money means nothing to the majority of people in this country and I am very pleased the merger will be past. The key words here are MAJORITY and DEMOCRACY.

[gekko13]

LOL!!! What a scam! You guys never let up do you? Always trying to put a dark lining on a silver cloud. The DOJ gave NO conditions, and those deadbeat dinosaurs at the FCC will follow suit, if they still want to hold their cozy government jobs when the FCC is dissolved. Your article smells of you spreading false insecurity so you can snap up shares at bargain prizes; and the lemmings out there who read it actually fall for it. Read my posts on the Alpha board about SIRI. Everything happened as I said it would, all except for the DOJ ruling before the FCC. And NO, I'm not blowing my horn and I don't know diddly squat compared to the rest of you. But the scenario was so simple and obvious. In "Reminiscenses? of a Stock Operator", the author states, "view the market in general terms, as a whole."

Siri was trading near the teens two years ago when they were chalking up hundreds of millions in losses. Well, Einsteins, what do you think they will explode to now after the merger sans concessions?

Buy your shares NOW, and shut your yapper!

[RomanCandle]

"You guys never let up do you? Always trying to put a dark lining on a silver cloud."

Well said. Considering this website has been consistently wrong about the merger from the beginning, take what they say with a grain of salt.

[thinkcenter]

What is breathtaking is the NAB continuing to be so hilarious as to release scathing remarks containing the word monopoly at the same time still scrambling to corrupt politicians against their competition!

What better example of Bush era idocy and corruption is there?

[GlobalView]

Great leap forward; NAB - put up your own satellite-it would have been cheaper; Brilliant DOJ-you got it right; Let the market(s) decide; National Security - we interrupt this program;

[[e-mail]]

The NAB is a bunch of Moral Degenerates that control a Monopolisitic venture which disallows individual ownes from acquiring local radio brands at a fair price... PERIOD!!! The only way anyone has the ability to break into their local market area is with a non-profit, and of course we all know what that means.. MORE CHURCH RADIO!!!

The NAB is scared that the only thing thye know is GOD, GUNS, REPUBLICAN talk show hosts, and DRUG filled music that plays repetively 100,000,000 times a day in every market in every city all over the country. They are pissed off that what used to be called Pirate Radio is now a legitimate SATELLITE radio broadcaster using airwaves that they can't control.

NAB = Nazi AM/FM Broadcasters!

[Bill Wertz]

I am a Sirius shareholder and a huge fan of Mel but, having said that, if final OK is given by the FCC for the merger the following items need to be a part of that approval...
1. HD Radio should be mandated to be included in radio's equipped to also receive XM and Sirius as that is a benefit that accrues to the consumer.
2. The combined company should be held to its 'national' license and not be permitted to provide 'local' content as that was a condition of the individual licenses originally.
3. Huge fines should be levied for past transgressions by both companies including numerous ground based transmitter sites; if XM's satellites stopped working most people wouldn't know it due to the many unlicensed transmitter sites. The license says satellite!
4. The merged company should be required to provide new radio's to existing customers to make certain their loyal subscribers aren't left with, in essence, a boat anchor.

I actually hope the FCC gives its final blessing with conditions that insure the playing field is at it was originally intended and that will allow both the merged company and local broadcasters to continue to provide valuable services to their audience; in the case of local broadcasters that includes vital emergency information that is simply no available anywhere else when the chips are down.

[thinkcenter]

Any one want to give me odds that Bill W. here is a NAB lobbyist or at least affiliated in some major way to the NAB? What big teeth you have grandma!

#1 FM crap broadcast in HD is high def crap.
#2 Can anyone fathom, except for the NAB anticompetitive agenda, why radio should be any different than cable and satellite for providing local content other than the reason that NAB doesn't know what to do with competition.
#3 Sat repeaters are still sat signals. They are not independent. Stop your lies.
#4 If you were a subscriber not just a trader, you would know we don't need a new radio!

NAB Improve your content! Give me one friggin' Jazz station. Get off your monopolistic butts.