$5 Billion Expected in Radio Merger Synergies - Bear Stearns

Robert Peck of Bear Stearns is bullish on Sirius (SIRI). He sees current prices as an attractive entry point, likely FCC approval with modest concessions, and $5 billion in merger synergies.

REPORT EXCERPTS:

Sector View:

The satellite sector includes companies operating in various sub-sectors and at various stages in their life cycle, which present different risk-reward characteristics. Positive Catalysts, Compelling Entry Point

Contrary to expectations, both Sirius and XM (XMSR) shares have declined since the DOJ decision. Investors seem to be concerned about some main issues, which we think are largely unfounded.

• FCC Approval Likely Without Onerous Conditions. One of the concerns is that the FCC may ask Sirius/XM to divest one set of spectrum. However, given this will result in significant dislocation for millions of existing subs, and limited possibility of another potential satellite radio play, we do not think spectrum divestiture is likely. We believe FCC approval is likely over the next 2-4 weeks and conditions could include providing limited carriage to other content providers, a la carte, as well as pricing caps for a specified period of time. Note, the Commission is meeting on 4/10, but satellite radio is not on the agenda.

• Debt Refi Not an Insurmountable Task. XM has to refi debt likely impacting $600M 9.75% notes, $200M FRNs, and $230M sale & leaseback. While the credit environment is not very favorable, we expect MergeCo likely will be able to refi debt (i) by paying some premium to debtholders, and (ii) the new debt will be in a significantly stronger merged company that will enjoy substantial synergies.

Position - Long Sirius, Long XM

Comments

[texasgolfer]

someone else besides me that thinks SIRI has a future, wow..it is nice to not be alone

[Yuriko777]

I don't think Sirius has a future until it turns a profit. It's that simple. Merger approval or not until you make money why would I invest in you?

[Sparks]

"given this will result in significant dislocation for millions of existing subs". Thats not a given. The FCC could require a dual frequency radio be developed and sold exclusively before the merger is finalized. After a set period of time one system would be sold and the buyer would have an audience. With the production of a dual radio in the market, building and adapter for most existing systems should be relatively cheap. Dislocation of existing customers would be minimal and delayed for as long as it takes for the new radios to gain reasonable market penitration.

[oregonduck]

If the FCC is meeting on Friday, why wouldnt this be on the agenda? Maybe they are putting on the concent agenda--ie--its approved with unanimous consent. If the DOJ approves, why wouldnt there be a problem with doing that?

[User 168418]

If DOJ has approved the SIRIUS and XM merger there is no legal reson for FCC not too. My bet is Friday........I think by then we will have more news.

[manchester]

When the FCC approved the Liberty Media Direct Tv deal, they announced at their monthly meeting; however, it wasn't on circulation nor was it on the agenda for the montly meeting. I believe there is a good chance the FCC will announce this deal tomorrow or Friday and that they have already voted by special memorandum to approve.

[gekko13]

Apr 09 04:26 AMWhy the hell are you people even bothering to lose sleep over this? The FCC will approve on the week of April 21. There will be an immediate short term pop into the high 15's for XM. You people should not even be concerned with SIRI here. Due to the arbitrage spread that is currently built in, you all should be dumping SIRI and transfering that money over to XM. You will at least get some of your losses back immediately even if XM doesn't pop after the merger (highly unlikely). After that POP there of course will be immediate profit taking just like the last time. So the choice is this: Take the profit then and hope that both stocks go down before the conversion? Or wait until after the conversion and then decide to sell your higher quantity of SIRI shares at a higher price?

I'll tell you this: I am holding on to all of my SIRI for three reasons:
1- Both these companies were bleeding hundreds of millions for YEARS and were trading at MUCH LOFTIER levels despite that fact, because of the cash-making potential their product offers. Now they will be ONE, and the IMMEDIATE monthly revenue will be 17+million subscribers X oh, let's just say $9.99 (for shits and giggles). All this with greatly reduced marketing expenses.

2- Terrestial radio SUCKS. I don't have anything to listen to in my old beat-up car except terrestial radio. And 75% of the time, I have it turned off. BECAUSE IT SUCKS. Commercials and crappy musical rotation. Mark my words in a couple of years, the radio as we knew it will be like the T-Rex. I can't believe people still listen to it. I would be shorting the hell out of all the radio stocks if i had more money.

3. I don't think the Ipods (and the like) will be much of a competition. Think of them just as the modern day CD player in your car. I think people will use them as a SUPPLEMENT to the satellite radio. Remember: you can't download a live talk show, football or baseball game, weather report, etc. to your mp3 or burn it to a cd, at least not while you're driving! And if you could do it, why the hell would you want to?

The bottom line? SIRI will be a MONSTER, and SOON. I'm not an analyst or an insider, and it's SOOO obvious to me? Now, don't you think all those geniuses know this too? If they don't, then I should have THEIR jobs! The stock will soar on POTENTIAL first, then the money will start ROLLING in. One other note...can you folks say "short squeeze"?

Tyler, any feedback?

J.C.

P.S. I think in a couple of years, due to the market dominance of SIRI, the FCC will eventually grant a license to another company (Clear Channel?) so they can compete with SIRI, because SIRI will be a monster.

[SeriouslySirius]

Sirius Radios and it's content will be one day be standard in every car in America with a la carte pricing starting at $7.00 /mo. I just bought an additional 10,000 shares today. I believe in Howard, Mel, and MLB!!
("BIG POPI" ORTIZ & DEREK JETER!!)

[Jerimiah]

To get SIRI in every car you just have to roll it in with the loan.

[oggie]

People who think satelitte radio is not the next big thing should think of our parents who said why do I need to pay for cable for my T.V when I can get it for free. Think about it. People hate commercials and terestrial radio is shaking in their boot.

[snappyone]

I think all these analysts are just upset due to the fact that Mel purchased a few million shares prior to merger announcement.

[User 168418]

THIS IS A BUY AT THESE PRICES..........MY GUESS IS STILL FRIDAY!!!
HOW COULD FCC MEET AND THE MERGER NOT BE THE TOPIC.

[Sparks]

Gekko13
You are right on with most of your analysis. Adding to the odds for an approval is the fact that the FCC is led by political dirt bags who will be out of a job in the near future. Mel should be able to find a home for those poor unfortunates. Your point 3 is a good argument for calling the merger a monopoly. I wonder why Justice missed that point. Mel will need more office space in DC, I guess.
Your PS suggested that eventually the FCC would grant a new frequency because Sirius would become a monster. A new frequency would require all new radios and a new satellite system. Mel already has plans for a new dual frequency radio. Building another three channel system in the future isn’t likely even if the FCC could find a frequency block for a third system.
I bought XM and Sirius after I saw the Sony XM system when it first went on sale at Best Buy. I sold when they went on that buying binge for “talent”. I’ll buy again if the merger is approved, and sell after it hits an all time high if the fine print in the ruling gives anyone the opportunity to compete at any time in the future.

[sniper6]

I own SIRI, bought it @ $4.25, and I think it will eventually turn into a winner, but not necessarily for the points already made by others. I will hold for the time being. I wish I had waited ($2.53 as I write this), but that water is already under the bridge. I do intend to add to my position at these prices.

The root issue, to me, is the satellite communications capability being built into both companies. One of these days, cell phones will be passe and everyone will be carrying satellite phones. Imagine a company that is getting their infrastructure in place years in advance.

I think a merger of SIRI/XMSR may well create a company that will be a friggin' GIANT when that happens.

[User 168418]

HERE IS THE FCC INFO YOU NEED TO EMAIL THEM THERE MEETING TOMORROW......IT'S LONG OVER DUE. AS THEY TAKE THE TWO STOCKS WITH THEM IN THE MUD.

Kevin J. Martin
Chairman

Michael J. Copps
Commissioner

Jonathan S. Adelstein
Commissioner

Deborah Taylor Tate
Commissioner

Robert M. McDowell

Federal Communications Commission
445 12th Street SW
Washington, DC 20554
More FCC Contact Information...
Phone: 1-888-CALL-FCC (1-888-225-5322)
TTY: 1-888-TELL-FCC (1-888-835-5322)
Fax: [phone]
E-mail: [e-mail]

[oregonduck]

So, sirius went down today either becuase another hack politco AG complained about the merger because of how it would allegedly affect rural Wisconsin listeners (Huh?!--you mean the ones who get NO terrestrial radio stations?!) or it is one of the most shorted stocks on the Nasdaq (more likely). This seems to me like a stock that is about to explode once the FCC decides to rubber stamp the DOJ. Since Kevin Martin has already gone on record saying that they are considering numerous possible outlooks depending on the DOJ decision, how could they possibly come out with a flat out disapproval? If there were significant opposition, Congress would have already conducted hearings on the merger to try to stop it. That has not happened. 12 attorney generals are not going to stop this train of capitalism from moving forward.

I now have 23,000 shares with an average basis of 2.75.

[Astronut]

On the FCC website, it doesnt list a meeting for Friday April 11. It shows a meeting for April 10 that was cancelled.

[Astronut]

merger is gonna be approved. ask price is 3.06

[venividivici]

SIRI has lost a huge amount of money and it hasn't come close to proving it can turn a profit. What it does have is a loyal band of fans who pump the stock incessantly. See above!

[oregonduck]

Interesting--Meeting was cancelled and next meeting is not until May 14th. Good or bad news? I think it is good news becuase they need more time to put together the approval documents. It is not a straight up or down vote. They need to approve a legal document that must be put together by the legal staff. A prudent move. If it was just a down vote, They could have easy just decided to refuse to adopt the justice departments findings and done that on the 10th.

[kenjr20]

I don't understand the people bashing the merger because it is going to create a monopoly?! I understand protecting the customer from a monopoly forming so they can charge whatever they want for their product, but this is not going to fall under the definition of a monopoly. If Sirius jacked up the price for their subscription, then people would cancel their service and live with their iPods, regular radio, internet radio, etc. (at least I would) I don't ever see that happening, especially since they are going to offer that al le cart pricing. With the money they will save from merging and all the new subscriptions they will get for being able to offer all sports programming and talk shows, they shouldn't need to raise prices.

I am an XM subscriber and a couple of my friends are Sirius subscribers, we are both excited for this merger. I'm sure that 99% of the subscribers feel the same way, not to mention the millions that are probably waitng to subscribe after the merger.

[ponchovilla]

Where's the beef? $5B synergy is a Dillusional headline. Just wait as repo's go up on car loans and fewer new cars are sold and that spells trouble for continuing monthly fees. People will find out even at $12 per month they don't need satellite radio after their free 1 yr subscription runs out with the new car loan.

[163888]

venividivici, Are you kidding me SIRI just posted FCF positive for the second half of 2007. While I'll agree that FCF and pure profit are not the same thing it is a sign that they are getting there.

What I think people are missing is the long run. It would take about 5 years for SIRI at current growth rate to get to 17.3 million subscribers. By that time both will have fully have integrated into one company. They will only have costs of about 40 % more then one company has now and have about 13 million more subcribers, (conservatively 30 million) paying more 14.95 to 16.95 to get the best of both 2 to 4 dollars more then each was getting prior to the merger. It will not cost ether company anymore to put that content out to each others subcribers at that point. There will not be that many current subcribers going to the lower 6.99 fee when you really dont get much for it. What it will do is bring more subcribers in and then switching to the higher price. just like most of us did with cable/satellite tv. People start with the 29.00 rate get so many channels, then move it up to 42.00 or more to get the rest.

[User 163772]

Poncho and "if frogs had wings" reasoning.

[aj1981]

I've just spent 30 min reading everyones posts and i think everyone will agree with me when i say that the overall consensus is this is a gold mine at the least you'll double your investment (assuming your buying at current prices 2.48-2.50) I just loaded up 8000 shares and i plan on adding another 65,000 shares. When FCC approves the merger (and they will approve the merger) I'm looking to at least double my investment, sell off quickly after words for a quick profit than load up again when it drops a bit. I am no analyst but in 2000 this baby was at $50 a share (siri) i think we can see this price range again in the next 2-5 assuming the economy recovers and the merger goes well.