Positive Radio Merger Outcome About Two Weeks Away

(Update below) Monday it was made public that Chairman Martin not only would be issuing a draft order regarding the merger of Sirius (SIRI) and XM (XMSR), but that he indeed supported the merger. This is probably the most positive news that SDARS has seen since the DOJ announced approval back in March.

What Monday’s activities mean, at a minimum, is that Sirius and XM have reached an agreement in principal with the Chairman of the FCC, and likely some of the other commissioners as well, that would allow the merger to progress.

I have stated that I expected the draft order to be circulated by Wednesday. I would expect that Sirius and XM have already made a filing outlining not only the voluntary concessions that could not be mandated by the FCC, but also the other concessions that were within the power of the FCC to mandate. I would anticipate this filing to be published on the FCC website as early as Tuesday morning. This filing will give the basis for the vote that the commissioners will have within the next couple of weeks. The filing will also give the street their first look at the concession list.

It is my opinion that at this point all concession negotiations are now essentially complete, and the vote is the finish line that sector watchers have been looking and yearning for. All of this is now within sight.

Understanding that 1) negotiations are complete and 2) that Martin, who supports the merger, would not call a vote unless he was relatively sure of the outcome, causes me to conclude that a positive outcome is only two weeks or so away.

For whatever reason the street was still a bit gun shy about Monday’s news, but that may well change when we get concrete evidence of the exact conditions of approval. Monday, analysts offered various opinions:

RBC analyst David Banks outlined the timing of events, which I happen to agree with:

1) An official order is issued by the FCC.

2) The Chairman and 4 FCC Commissioners (3 Republicans, 2 Democrats) submit votes—the Republican votes are likely to come first. This is where modest additional delays could occur as one of the Republican Commissioners could refrain from voting (due to unrelated political agenda) (I, Tyler Savery believe this is Tate) unless a public meeting is held.

3) The final 2 Commissioners (likely to be the 2 Democrats—Copps and Adelstein) customarily have 10 days following the Monday after the 3rd Commissioner vote (likely to be either McDowell or Tate) to submit their votes. Precedent indicates Democrats would probably not try to delay the approval process further if 3 other Commissioners vote in favor of deal.

4) Merger is officially approved by the FCC.

I believe that Banks and his source are very correct in the timeline. If the 3 votes all happen by this Monday, then we could see the other two by the first week in July. If Sirius and XM have been successful in their meetings with Copps and Adelstein (they may have more meetings this week in my opinion), then the 10 day wait may not happen. This would allow for approval by the end of June. I have long felt, and expressed in the past, that commissioner Tate was somewhat of a wild card that would ultimately vote to approve the deal and that it was a matter of concessions.

Barrington sees a longer process and states, “FCC Chairman Kevin Martin is now reported to back approval of the satellite radio merger. The other four commissioners have not weighed in with their votes. Still, Mr. Martin’s support should strongly tilt the balance toward approval. A favorable ruling by the FCC along with the prior approval of the DOJ could enable closing of the deal perhaps as soon as over the next several weeks, though there would still be a couple of issues to iron out.”

I guess the definition of “’several” needs to be considered. I have always looked at “several” as a number greater than a “few” and less than a “dozen”. In my mind “several always translated into 7 or 8. I simply do not see the merger process going on that long.

Wachovia’s Jeff Wlodarczak sees the merger gaining approval, but feels that upside is already built in to a certain extent. The analyst stated, “We continue to believe sat radio cost structures and business models need to be right-sized for a market that is significantly smaller than the companies originally anticipated. While merger approval at this point appears to be an inevitability, a roughly $11B combined company enterprise value already reflects a very rosy scenario in our view.”

To a certain extent, I agree that the upside is limited in the short term. It will take a few quarters for everyone to fully grasp where SDARS is headed in a post merger situation. The longer term outlook in my opinion is fine, but the size of the immediate pop may be held back by battle fatigued investors.

Tom Watts of Cowen feels that the concessions outlined today are better than expected. In his note, Watts stated, “Two More Votes Needed, Likely Over Next Week. Two of the remaining four commissioners must support him, which we expect. We expect final FCC approval by the end of next week.”

I agree that the votes needed are likely in hand. The timing of the end of next week is also something that I feel is not only reasonable, but likely. Watts rates XM an outperform.

Utendahl's Alden Mahabir sees the concessions as on par with their expectations, but is unsure of the outcome. The analyst noted, “We believe it is hard to say which way the other four commissioners will vote, as they have been fairly tight-lipped in their opinion. That said, some of the commissioners could find that the transaction may need additional conditions before being approved or that the merger is anti-competitive altogether.”

While this opinion seems off kilter with my own, nothing is never a foregone conclusion until it happens. I happen to believe that Martin would not have taken this step unless he had a relative certainty about the outcome. The fact that Sirius and XM executives are making the rounds at the FCC leads me to believe that there is a comfort level on at least three votes. Mahabir has a $4.00 and $19.00 target on Sirius and XM respectively under a merger approval situation.

Janco feels that Martin's endorsement and a vote along party lines could mean approval at any point in time. In a note Monday, Janco commented on some of the conditions: “There were two new conditions that we saw: First, the allocation of 24 channels for noncommercial and minority broadcasters; and second, the notion of “open radio”. The 24 channels were higher than we had expected; however, we do not believe that SIRI/XMSR will walk away from the deal over 24 channels. “Open radio” allows any manufacturer to produce a satellite radio, which we think is a nice idea in concept; however, the limited volume will probably not be attractive to many of the CE manufacturers. Therefore, we do not believe this condition will have an effect one way or another.”

I see the conditions as not stripping away value. The channels will still be part of the Sirius and XM system, and will not be available to non-subscribers in my opinion. This means that regardless of what is on them, Sirius and XM will get value for them any way.

In my opinion, there is market confusion over Monday's activities. The step taken Monday is much bigger than many think. This is essentially a green light for the merger, and the formality of a vote is the only missing component. The concessions are not overly harsh, and do not strip away synergies or value from the deal. The conditions allow the company to preserve the existing service for the customer base while at the same time allowing for room to migrate to a single system.

There seem to be several opinions, but in simple terms, it is my opinion that this deal is now signed and sealed. It is only the delivery that we are waiting on. For sector watchers, some of the confusion that happened Monday will gain clarity in the next couple of days.

Update: The formal letter outlining the concessions of the merger was posted to the FCC website Tuesday morning. The market will now be able to digest exactly what the FCC commissioners are voting on. This letter represents the agreements that Sirius and XM have made regarding the merger, and the issues that the commissioners will consider with the draft order issued by FCC Chairman Kevin Martin. Concessions include:

A-LA-CARTE PROGRAMMING

• 50 channels for $6.99 with additional channels priced at $.25 cents each Capped at $12.95
• 100 channels for $14.99
• A-La-Carte radios will be available within three months

BEST OF BOTH PROGRAMMING

• Subscribers will receive their base service (Sirius or XM) and will get the best of the other service for $16.99

MOSTLY MUSIC OR SPORTS NEWS AND TALK

• Available for $9.99

FAMILY FRIENDLY

• An $11.95 price for base subscriptions and a $14.95 price for the best of both subscriptions

PUBLIC INTEREST CHANNELS

• The combined company will set aside 4% of the full time channels. Part time channels get aggregated. This currently represents 6 channels from Sirius and 6 channels from XM
• An additional 4% will be leased to a qualified entity which Sirius and XM have no editorial control. The 4% will be maintained as compression technology advances

OPEN ACCESS

• To be included within 1 year of the merger

SERVICE TO PUERTO RICO

• Service within three months of merger

INTEROPERABLE RECEIVERS

• Available within 1 year of merger

RATE FREEZE

• 36 month rate freeze

In my opinion the concessions outlined are not overly burdensome, and do not strip away synergies of the merger. Many concessions are outlined for public interest, and in the interest of the consumer. Sirius and XM maintain control over their network, and can grow their business as technology advances.

[FCC Filing]

Position - Long Sirius, XM.

Comments

[buddylee]

Thanks for the insight. Your on top of things as always, but "nothing is never" set in stone as you said.

[ace22]

i was begining to think you sold out tyler glad to see you again, good article.

[mgv11]

Out of curiousity what are SIRI/XM recourse if the DOJ has approved, Martin has approved with say 1 other person so the vote falls short within the FCC? And I do agree, we have investor burnout, a changing user market that people are mistaking the extended acquisition and purchase delays too, so we'll see a pickup in demand as the transition gets completed in the next year.

[User 202507]

TYLER THIS MARKET IS RIDICULOUS! WHY IS SIRIUS BACK DOWN AFTER THE POST-MERGER CONFIRMATION ANNOUNCEMENT? CITIGROUP UPPED TO $9? WHY IS THE STOCK SLIDING THEN??

[ace22]

I DONT GET IT EITHER WTF??

[User 168418]

MARTIN WOULD HAVE NEVER GONE PUBLIC IF HE DIDN'T KNOW HE HAD THE SURPORT TO APPROVE THIS. JUST WISHED THE FCC TOOK THE DRAMA OUT OF THIS AND HAD THE 5 COMM VOTE BEFORE GOING PUBLIC. TO ME THIS IS A BARGIN AT THIS PRICE MY GUESS $5.00 ON THE POP

[Bababooie]

I believe Investor response will mirror the "Broadcast" of the approval over NAB controlled sources. The coverage of this may be stifled by those TV based Broadcasters that have a vested interest in radio stations.

[MrW MBA]

Low cost high volume stocks like siri always look crazy in these types of markets.

Additionally, I think that there is a huge number of unsophisticated investors constantly buying and selling this stock with no discernable strategy: which is in turn making this stock price go bonkers.

I myself have had 2 margin calls over the past few months because of it. But I'm not sweating it because I know that my 10,000 shares in the next year will be valued well beyond what they are now.

If you need any further convincing that this is truly a good company, check out the balance sheet and see how the are getting progressively better year by year. Now on top of that, imagine how much better they will look post merger with more than double the subscribers and the absence of their biggest competitor (XM).

I don't know if siri is the company of the future like many is saying: A siri receiver in every ipod, computer, and phone which will also on day include tv along with radio. But I DO KNOW that there are profits to be made over the next year IF the merger is a go.

I can’t stress enough: HANG IN THERE!

[tradeking13]

"Several - more than two but fewer than many"

www.merriam-webster.co...

[User 202507]

tyler HOW can sirius be dropping post-merger quasi approval, hovering near its 52 week f*** lows??!?!?!?!?!?! THIS IS A DAMNED SCAM!!!!

[User 202507]

THAT MOTHERF**** FROM CITI WHO GAVE SIRIUS A $9 TARGET IS LYING THROUGH HIS @$$!!!!! SOB!!!! IF IT WAS A LEGITIMATE TARGET, IT WOULDNT BE NEAR ITS 52 WEEK LOWS!!!!!!!!!!!!!!!!!!... SCAM!!!!!!!!!!!!!!!!!!!!!!!!

[Tyler Savery]

Ace...

I have still been around, and have been publishing articles. Seeking Alpha does nt pick up everything I write. You can see more at my website.

Others....

It sure is down, and that is frustrating. I think people want the merger done, not almost done.

[User 202507]

tyler...,sirius is at 2.37 NEAR its 52 week low of $2.36..HOW MUCH LOWER ON THIS DAMNED STOCK??? ESPECIALLY In light of the FCC commissioners approval! THIS HAS BEEN A NAUSEATING STOCK TO HOLD SO HELP ME GOD!! any thoughts on the matter???!!! thx

[killerkaul]

EVERYONE RELAX.......... This is the final buying opportunity before the merger in 2 weeks. Back up the truck, and load up as it drops. Dollar cost average your total # of shares. Most of you have never bought it this low. Downside risk is minimal!!! You will be kicking yourself in 2 weeks if you do not. Run Blue Dog Run!!!!!!!!!!

[GJELOSH197]

xmsr and siri which tyler is both long, are both in danger of breaking their 52 week lows...they are not going to be profitable for another 3 years..WHY is the smart money apparently so bearish on the damned companies in light of martins approval?? I JUST DONT GET IT; tyler thoughts?

[163888]

Killerkaul, you said it, JUST RELAX. I would not worry about the 2.35. Here is why not countining today, SIRI has come close or hit the 2.35 So many times I cant count but for no reason it has always come back up. There have been reasons it should have went lower but did not. As a matter of fact Tyler had made a comment or article on this I think it was in mid Apr.

[163888]

I have to say, the concession that bothers me most, is the one that makes them provide service to Puerto Rico. My god that makes me so mad. Someone should tell Martin good job in extracting that one. WHAT DO THEY WANT BLOOD FROM A STONE. I mean hell, now they are going to have to deal with a new pool of potential subscribers. Dam the FCC, DAM THEMMMM!!!!!!!!

[163888]

I just thought you guys need a laugh. Mel Karmazin is the best, you have to love having him on your team.

[killerkaul]

163888........Picked up another $10,000 at $2.40 today. How about you? Will try for another $10,000 tomorrow. Puerto Rico huh! Coudn't find much of you guys today. See you tomorrow.

[muley101]

Hey Tyler, do you have any insight on plans to expand the video business? It would be really cool if I could dump my Cablevision for a few key TV channels from X/S.

[163888]

Stan, I think that is at least 6 years away, The interoperable radio has to be standard so they can cut overlaping content to make room for it, unless compression tech improves sooner. I do agree with what you are saying, that down the road this company is going to be such a media powerhouse.

Killerkaul, I still have those channel shares I got at 2.45 I will keep them til 3, now that we are close to a decision. I have so much of the stock now I need it to go to 2.1 or below before I would get more. Because if it gos lower then 2.3 - 2.35 the merger did not get approved.

Hey Dsx down to 31.93, remember when I sold, I'll get that back if it gos below 30 again. unless the DBI is down big, or some other bad news.

[User 202507]

SAVERY, BID-ASK IS 2.36-2.37 PRE-MARKET..WHAT THE HELL IS GOING ON? WHY HAVE YOU TOUTED THESE 2 STOCKS AND THEYVE DONE NOTHING BUT SLIDE??????? WHEN DOES THE BLOOD-LETTING STOP???? ANY THOUGHTS????

[sirilong]

Pre-market action is a result of artile on The Deal regarding Commisioner Tate. Apparently she is wavering. Go to orbitcast.com to read. Let's hope she does the right thing and votes for the consumer and the merger rather than her own self interests.

[Doobz26]

2.25 IN PREMARKET. THIS STOCK IS UNBELIEVABLE.

[User 202507]

GOLDMAN BASTARDS DOWNGRADED SIRIUS TO $1.75 & XM TO $6.50 TODAY..NICE GOING TYLER..WHY SO QUIET YOU #@&@*!()

[killerkaul]

User202507........ Shame on you. If you can't take the ups and downs of this game, you ought to go back to trading comics. You get stressed, and strike the nearest smaller girl on the swing set. What a baby! Get your toys and get your fat butt home to your mama, before a little girl comes along, and paddles your sniveling ass for you. Keep up the great work Tyler. 163888

[killerkaul]

cont..... 163888, Your thoughts on the downturn this morning?

[User 202507]

killer kaul you f*idiot!! these stocks have been hyped and pumped for 2 years and they break the lows!!! know what youre talking about before you speak..citis $8 couple of days ago was bullsh******...tyler THANK YOU VERY MUCH!!!!!! you should think about trading comic books instead

[Doobz26]

HOLY SHIT. UN-FRICKIN' BELIEVABLE. 2.00 AND SHE HASN'T EVEN BOTTOMED OUT YET. I JUST BOUGHT MORE THIS MORNING. WISH I WOULD'VE WAITED A HALF HOUR. I'M SICK TO MY STOMACH RIGHT NOW.

[JR-Boston]

Welcome to the perfect storm. Downgrade during option expiration week= higher volatility. Not surprising we are this low. Wienkes' analysis is one sided. Retail is not going to pick anything until they know if they are merging or not. Duh. Second, 6.99 base price IS going to generate demand and people will keep it. Better than listening to Terrestial radio. Finally, XMSR has been running by itself. No one there like Mel to keep costs in line or push up revenues. As much as 50% of the combined S,G&A will be cut away, and the gross margin for both is projected to improve by 25% within the FIRST year. Buy on this stupid downgrade. I did.

[killerkaul]

stan... I believe you are right. a buying opportunity. Long Siri.

[Sirius Fan]

Wow...Options expiring, a downgrade from an obviously partial analyst, arbitrage over 10% when the deal is all but certain to get done. Can anyone say manipulation?

What a bargain! I smell a 5-bagger here!

[cash money]

Citis put an over on the price target and GS put the under. Hopefully we reach the middle.

[cash money]

killerkaul and 202507 take this way to personally

[killerkaul]

cash..... I probably do. To see Tyler treated this way, after his providing all of the invaluable information, to you and I the investors, during this long fight, just hit a nerve. Some people shouldn't be trading stocks, if they haven't the heart for the ups and downs in the market. It must be great to be so perfect, that every personal action can be blamed on someone else. Accept the blame/applause for "you "decisions, and trades..........after doing the due diligence and homework. Nuff said on that. Again, I appreciate all youv'e done along the way Tyler.

[cash money]

Tyler is a good writer. We have to realize this stock is moved by the greater powers of options. All we can do is know that once the merger is complete, we can all cash out and make a little scratch (hopefully above 2.74 32.5k shares)

[Tyler Savery]

wow...a lot of opinions here. Goldmans note today took an immediate toll. This puts Goldman and Citi at opposite ends of the spectrum.

I have said for some time that the lack of any real guidance from the companies has these stocks trading in a channel, and that there is a limit to the upside until more is known and understood by the street. That being said, it is only my opinion, and I am not trading the stocks. Many in the sector right now are trading in and out and playing the channel.

I do not give financial guidance, and am simply reporting what the analysts are saying. Analysts that follow the sector have and reach their own opinions. There are typically aspects of every report that I agree or disagree with. I recommend that readers utilize various sources for information and opinion. I gave as much attention to the Goldman report as I did to the Citi Report.

The fact that I am long both equities is not a recommendation for buying. It is simply a reflection of a position that I have, and have had for quite some time.

[163888]

I just bought at 2.05 Goldman as been saying that crap for years.

[User 202507]

HOW CAN THE SIRIUS/XM PLAY NOT BE FRUSTRATING TO ALL US LONGS WHO HAVE HELD THROUGHOUT FOR 2 YEARS NOW AND THIS CHANNEL YOU ALLUDE TO HAVE BEEN BROKEN DECISIVELY ON THE DOWNSIDE..GODMAN THOSE #@$@(@()#!!!

[163888]

If the merger gos through yee haa, I love it. Sell you fools, Goldman is now saying something, new!!! he as alwas said this and most other analyst feel differently.

I have to admit when I saw the down turn happen, I thought the merger failed. I just could not believe Goldman pushed it down that much. When I saw it was just him I bought. That was a close one, a little scary I thought no merger for a second. I love this.