Analysts Note Latest Satellite Radio Merger Angles

A day after comments by Martin in the Washington Post were viewed as positive by the street, the FCC chairman issued more neutral talk Friday that centered on the possibility of additional or more stringent concessions being considered in the merger process.

During all of this, Stifel analyst Blair Levin issued a note saying that the end game on the merger may be close. Levin, an analyst well in touch with the FCC and the regulatory process, noted that Commissioner Tate will ultimately vote for the merger, but may seek additional or strengthened concessions. I have agreed that on the GOP side, Tate was the most likely to be a wild card in this situation. She is currently out of town on business.

In his note, Levin stated, “As of Ms. Tate’s departure, we don’t believe she had yet finalized her views on whether the merger should be approved, though we continue to believe she is likely to end up voting for the deal, albeit with some conditions that are not in the draft order currently circulating among the commissioners. We don’t know what additional conditions she would seek — and she has at times expressed a broad range of concerns – but we would not be surprised to see some strengthened enforcement actions and further details on radios and diversity.”

Commissioner Tate recently had meetings with Ibiquity as well as Sirius (SIRI) and XM (XMSR). There has been a good deal of pressure to have HD chips installed in all satellite radio receivers, and Tate has been lobbied hard by terrestrial radio groups. At one point terrestrial radio representatives forwarded anti-merger “talking points” to the commissioner.

While the theory of HD radio chips in SDARS receivers may seem consumer friendly, there are indeed issues with the concept. A major stumbling block is the business end of the Ibiquity proposal. Who pays for all of this? Ibuity told Tate that the cost is between $10 and $12 per chip. The natural question would be why SDARS should pay for even that. A second stumbling block is that the Ibiquity proposal tries to circumvent negotiations with auto manufacturers as well as hardware manufacturers. GM (GM) and Toyota (TM) came out against Ibiquity last week, and Pioneer has come out against it in the past. With major manufacturers making strong cases against the deal, Tate could have trouble bringing this issue as a concession. The third stumbling block for HD is Open Access. How open would open access be if manufacturers were required to pair HD with SDARS? What if a manufacturer only wanted to pair an MP3 player?

Levin could well be right that additional concessions may be sought by Tate, as well as other commissioners, but in the end, if Tate is the swing vote, I see her demands far more merger friendly than, say, the demands of commissioner Copps.

The draft order had built some excitement that the merger could be near. In my opinion, Martin and McDowell would vote for the merger as proposed in the Draft Order. If Tate is indeed considering deeper concessions, they should be panned out upon her return. The beginning of July has slipped into the middle of July. It would be nice to see a decision by the end of July. Anything beyond will crimp the satellite providers even more, as they are now ramping up for the all important Q4. A-La-Carte radios on the shelves for Q4 would not only be street friendly, but consumer friendly as well.

David Joyce, analyst for Miller Tabak, issued a report Thursday that begins to take into account some of the guidance issued by Sirius the previous week. Joyce sees Sirius and XM both as buys, but has lowered his short term price target on SIRI to $3.00 and long term estimate to $4.00. The analyst has a $14.00 price target on XMSR.

Joyce believes it would still be relatively cheaper to buy XMSR now rather than SIRI, based on their merger exchange ratio of 4.6 shares of SIRI to be issued for each XMSR share. In his opinion, based on the current SIRI price ($2.00), XMSR should be trading at $9.20, but it is currently at $7.79, an 18% parity valuation gap.

Citi analyst Tony Wible published a note Thursday highlighting comments from auto sector analyst Itay Michaeali. In simple terms, the analyst does not see a situation where any of the OEMs claim bankruptcy. While they do see a need for the “Big Three” to have a cash infusion, the likelihood of Chapter 11 would be offset, because “such a filing would be harmful to debt holders due to the meaningful loss of market share that would ultimately impact all stakeholders including labor unions and existing customers. A more suitable and likely workout plan entails a recap which would provide higher recoveries and fewer job losses.” Michaeli sees Ford (F) as the OEM with the best liquidity.

Wible, the satellite radio analyst, then adds what he feels the impact on SDARS would be. According to Wibble, he expects no near term disruption to unit production, but should one OEM file, the market share would be shifted by sales from other auto manufacturers. Wible made no adjustments to their OEM installation rates because they believe that the numbers they have are already conservative enough.

One point that I disagree with Wibble on is the impact if one of the “Big Three” does file. Ford, GM and Chrysler (DCX) all put a substantial amount of installations into the marketplace. If one of these OEMs were to file Chapter 11, the chipsets that are already in the hands of the OEM and subsidized will not simply shift elsewhere. While other OEMs will absorb market share, they may not be as big a contributor to SDARS installations.

The OEM channel is important to SDARS. When the sales drought stretched past 5 months, it became something that satellite radio sector watchers should pay attention to. While calling a fire sale would not be prudent, it would also be foolish to take your eye off of the companies responsible for a large number of installations.

Tyler Savery Position - Long Sirius, Long M, No Position OEMs

Comments

[PROTECT ANDSERVE 0310]

MERGER IS IN!!!!

[wilber]

I have never understood why ony the OEM's are important to satellite radio. I have enjoyed it in my home, hooked up to my stereo since 2004... as well as my car.

[PROTECT ANDSERVE 0310]

MY LETTER BEING SENT TO COMM TATE: FEEL FREE TO COPY AND SENT BY MAIL TO HER OFFICE.
JULY 15, 2008
Commissioner
Deborah Taylor Tate
Federal Communications Commission
445 12th Street SW
Washington, DC 20554




PLEASE APPROVE THE MERGER OF SIRIUS AND XM

THE FCC IS MOVING IN THE RIGHT DIRECTION IN APPROVING THIS MERGER BETWEEN SIRIUS AND XM

IN THE INTEREST OF NATIONAL SECURITY, A FREE MARKET, AND PRICE CONTROL WE SUPPORT THIS MERGER ALONG WITH THE FCC CHAIRPERSON, MR MARTIN AND THE DEPARTMENT OF JUSTICE.

WE REQUEST THAT THIS APPROVAL BE MADE AS SOON AS POSSIBLE WITHOUT FURTHER DELAY.

The Department of Justice's careful and thorough evaluation of the proposed XM-SIRIUS merger proves that this transaction is not anti-competitive and is in the public interest. Following their merger, the combined company will be able to provide even more unique and diverse programming for rural audiences that are currently unavailable on traditional radio at competitive pricing thru al-carte. I urge the FCC to consider these and other important benefits and allow the merger to proceed." without further delay.

With the high cost of oil at $142 a barrel, the slipping economy, the rise of gasoline over $4.30 a gallon and other expenses XM and Sirius Satellite have tough times ahead and as we know the satellite radio is competing with many different forms of entrainment such as TERRESTRIAL RADIO, HD RADIO, I PHONES, I PODS, MP3, SYNC, TVIO, DDR, RHAPSODY, NAPSTER, E-MUSIC, INTERNET RADIO, and CD's I am sure the FCC position is to have a free market and not drive one or both of these companies to bankruptcy? Remember nobody is forced to spend one red cent if they choose not to have satellite radio. It's apparent with the exception of a few selective lobbyist groups for personal interest and gains are trying to prevent competition in the broadcast business.

In America the choice should be with the people and I believe the people have spoken loud and clear and want this merger to go thru. Unlike Gasoline, Oil, Food, Medicine, along with other necessaries Sirius and XM Satellite are forms of entertainment and am truly convinced that the consumer will protect it's self keeping the price down and the service up.

The Department of Justice's careful and thorough evaluation of the proposed XM-SIRIUS merger proves that this transaction is not anti-competitive and is in the public interest. No conditions were placed on this merger because they understand that the consumer can protect it's self and following their merger, the combined company will be able to provide even more unique and diverse programming for rural audiences that are currently unavailable on traditional radio.

Both Sirius and XM are participants in the National Alert System, which replaced the Emergency Broadcasting System in 1994. However, the NAS has been found to be dangerously lacking.
The EAS was not even used during the 9/11 attack and there have been several false alarms since it became operable. In fact FEMA, after hurricane Katrina, have concluded that the ERS does not really meet their needs and are installing their own satellite-based distribution network. The CDC really has no formal method for warning the public of health emergencies, and relies on the news agencies to get the story out.
The spectrum set-aside of 12 channels by the combined company presents a unique opportunity to serve the public in case of world, national, and local emergencies of all kinds. Currently, it appears unless there is a serious need for the President to address the nation to warn of eminent danger the EAS is never used on a national basis. Messages approved by the states governors, like weather and Amber alerts, are transmitted at the local level.
In addition to education, some of the 12 non-commercial channels would be available for use by government agencies like FEMA, CDC, Department of Homeland Security, EPA Disaster Response, and the National Weather Service, to name a few, in case of a widespread emergencies. This would give the public a nation-wide and consistent distribution network for emergencies and emergency preparedness, perhaps making the need for additional networks like the one planned by FEMA unnecessary. Since satellite radio will only be available to the subset of the population subscribing to it, other content providers like terrestrial radio could be able to rebroadcast the non-commercial channels.
The public needs a system in place in the event of terrorist or bioterrorism attack, epidemic or pandemic, or natural terrestrial or extra-terrestrial disaster which could take the lives of hundreds of thousands as Katrina did, and displace millions. The merger of Sirius and Xm would provide a well needed network of 14 million listener
The FCC have a once in a lifetime opportunity to provide the public with a true national emergency and disaster preparedness system by approving the merger of the two companies. Perhaps this could even happen in time for it to be operable before the next Katrina or 9/11.
THERE HAS BEEN NO REASON WHY THE APPROVAL OF THIS MERGER OF SIRIUS AND XM HAVE BEEN DRAGGED OUT SO LONG THESE TWO COMPANIES HAVE BEEN HURT SO BAD AND ARE FIGHTING TO STAY IN BUSINESS. DOJ GAVE ITS APPROVAL AND HAS STATED THAT IT IS NOT ANTI COMPETITIVE. THIS SHOULD NO LONGER BE AN ISSUE FOR THE FCC. THE ONLY THING FCC SHOULD BE CONCERNED ABOUT IS TO MAKE SURE THAT THE COMPLIANCE OF THE AGREED CONCESSIONS MADE BY SIRIUS AND XM SATELITE ARE CARRIED OUT.



Respectfully,

[valuestocksonly]

I have been looking at used cars this weekend and found 4 out of 10 are sat-ready. That is huge! 40%! The analysts are not taking this into account.

[sparky]

I agree w/ Valuestocksonly -- This year I traded in two Sat-ready autos for two new autos that were Sat-ready.

[Edster]

The whole matter of approving or disapproving the merger of Sirius and XMSR is obiously political. Wouldn't surprise me if the decision is put off until after the election in November. The whole matter is rediculous and keeping the satilite companies in the dark for such a long time is not only reduculously unfair but costly to the companies who are struggling for the first time to achieve profitability status.

[NotVerySmart]

You can write a letter to commisioner tate at the following address,
please offer your support for the merger and take a few moments to do
so. Here's the link:

www.fcc.gov/commission...


Here's my letter to Mrs. Tate:


Dear Mrs. Tate,


The recent advent of free streaming internet radio combined with
the recently approved Clear Channel merger has created an anti-
competitive bias against satellite radio providers. Although the
terrestrial radio companies have invested much to buy support, I
beseech you to resist the well paid opposition and approve the
Sirius / XM merger without any further conditions. The truth is that
satellite radio will have to fight hard to survive now; any further
delay may cripple their ability to remain solvent. I'm sure you are
concerned about the political implications of not cooperating with the
democratic pundits, however if you truly have future political
ambitions I would suggest that the public (myself included) is
watching your decision closely. The delay that the FCC has imposed on
this merger has already sacrificed billions of republican
constituent’s equity, this will not be lost from memory when your
political ambitions change from appointment offices to more publicly
controlled offices. If the power of the people is valuable to your
long term prospects, then I suggest you resist the short term benefit
gleaned by appeasing special interest groups, and do the right thing
here. Enough is enough. Please demonstrate your ability to be a fair
and offer your vote for merger approval. Thank you.

[Dustyoden]

About a week ago I would have agreed with Edster on the merger decision being put off until after the elections but with FCC Chairman Martin's recent rumblings on asking for the other commissioners for their further input on concessions I see this panning out differently now. Commissioner Cobbs will likely add hardened concessions this coming week which the street will overreact to, when, in reality, Cobbs is already a given to vote against the merger. Additionally, Commissioner Adelstein may come out with his additional concessions. None of this is relevant for the merger. Once Commissioner Tate returns from her business trip it will be interesting to see how long it takes for her to lay out her final concessions to the merger and shortly thereafter expect the merger to go through. Tate is a very sharp women and I am sure she is fully aware the longer the delay at this point the more Sirius and XM will be hurt financially in '09.

SIRI Long, XMSR Short (due to the unbelievable gap in the arbitration premium)

[fatcat]

I don't know what all the sat talk is about..I can't see any way to make in money in this trade!The world seems to be falling apart and we're talking about radio...

[Dustyoden]

I think you might be on the wrong forum fatcat. Try googleing chicken little.

[NotVerySmart]

LOL :-)

[PROTECT ANDSERVE 0310]

FROM WHAT I AM HEARING THE DOJ HAS BEEN PUTTING LOTS OF PRESSURE ON THE FCC TO VOTE ON MERGER. AND NOW MARTIN IS FEELING THE HEAT WITH MANY COMPLAINING AND THE THREATOF TAKING LEGAL ACTION AGAINIST THE COMMISSIONERS AND THE FCC FOR IT'S LONG DELAYS. THIS PRESSURE IS NOW BEING PUSHED DOWN TO COMMISSIONER TATE. THIS BECOMES A URGE LEGAL ISSUE IF THE MERGER IS DELAYED LONGER AND IF THE MERGER DONT GO THRU. SO AM SAYING THIS WEEK WHEN TATE RETURNS SHE SIGNS OFF ON THE MERGER AND WE MOVE AHEAD.
MY GUESS IS ADELSTEIN ALSO VOTES YES ON THE MERGER AND COPPS ABSTAINS. $4.00-$4.50 ON THE POP

[Dustyoden]

I feel like your target price on the pop may be a little high only because of the fact that this has taken so long to even get to this point. I think a lot of people are going to use the pop to sell and try to take any profits they can and get out. Had this been a smooth merger I don't think it would be an issue but a lot of people have had their money tied up in this merger and are getting frustrated but don't want to sell right now since they are probably in the red due to that 75cent plumit the other week.

[Dustyoden]

I also not sure Adelstein votes for the merger simply becasue of party lines. Adelstein will let Tate get her vote in and that will be that. No need for Adelstein to even get in the mix.

[club.investment]

It would be smart to SHORT SIRI & BUY XMSR based on the arbitration gap XMSR is currently worth $9.79 Per share with SIRI at $2.13 anyone short XM would get hurt right off the bat on merger approval & I expect this week the deal gets done.

[tech man]

Ronjsq, i heard the same thing. hope this is the big event. been going on for way to long. thanks for the update. t.m.

[BIGBADDOG]

Well it is getting more obivious than ever that Clear Channel is paying people off - they got their approval in record time???? But I guess that is very well known according to a local reporter.

[club.investment]

*7/14/2008 Top Traders Pick XMSR* Added Note:

7/14/2008 Top Traders Pick: XM SATELLITE RADIO(NasdaqGS: XMSR)Rated NEW 'Strong Buy' Current price $7.81

Note: XMSR is trading at a huge discount based on the SIRI/XMSR merger share holders will end up with 4.6 shares of SIRI for every 1 share of XMSR and SIRI has a current share price of $2.13 x 4.6 = $9.79 per share instant value for XMSR share holders. XMSR stock is 25% undervalued compared to SIRI share price.

Added Note: Buying XMSR at current $7.81 is the same as buying SIRI at $1.70 per share as $1.70 x 4.6 = $7.82 per share.


----------------------...
Disclaimer: The information provided above is believed to be accurate. We do not give investment advice, nor do we at any time manage or direct the funds of any person or company other than our own. Positions contained in this report are our own personal ideas and thoughts and are not intended as trading advice for readers. This report is issued solely for informational and entertainment purposes and content is not to be construed as being an offer to sell or a solicitation to buy any security.

[muley101]

Martin is saying that the commissioners who have concerns have net even articulated them and what they want done about them yet. Unbelieveable! After a year and a half, how incompetent can they be?!?!

[muley101]

Just thought of why. They want their pockets lined. That's what they want done about it. It's a little hard to articulate that in a document.

[cos1000]

Dustyoden......I'd be clearing my short position on XM today or was that a typo on your part. Long XM is where the premium is on the arbitrage play.

[PROTECT ANDSERVE 0310]

BY THE MID OF THIS WEEK SIRIUS SHOULD BE ABOUT $2.60

[thinkcenter]

It is now way past time to indict and prosecute the negligently criminal actions of the FCC board. DOJ please help to serve justice! Do your job. This has gone far beyond politics and deep into pure simple and pervasive corruption. I demand justice!

[shure46]

AFTER merger approval , maybe we should lobby for an investigation into this mess .....I still think someone needs to look into just why this took so long , and how a few self serving people have crippled 2 companies almost to the brink of bankruptcy , and were directly responsible for millions of dollars lost , or almost lost , by thousands of investors by complicating what should have been a "no brainer" decision ......There is absolutely not one shred of evidence that a combined Siri / Xm , is "harmful" to consumers in any way shape or form ....The ONLY entity threatened by satrad is terrestrial ....and it is THEIR interests that were at the core of this negligent procrastination ......"follow the money"

[lancem]

We need to write and call this B____
Commissioner
Deborah Taylor Tate
Federal Communications Commission
445 12th Street SW
Washington, DC 20554
1-888-225-5322
Commissioner Tate,
I hope that you seriously consider approving the merger of sirious-xm. It is ridiculous to disallow this merger. One or both cos. will be forced to go bankrupt and then you and the rest of the FCC will be responsible for the failing of possibly both cos. This is no way to treat the public who have spent money on equipment that is not usable now because of simple political idiocy. Do the right thing pass the merger before its to late, I think 1&1/2 years is long enough to let these 2 cos. hemorrhage money.

[The Vicarof Value]

I'm sure Commissioner Tate will give your feeble letters all the weight and consideration they deserve. Why waste your time?

[User 168287]

How much money can i make if I hold out another 5-6 months?
Heck, I just want to keep my job and some cash!

[siriuslypissed]

WHY in the hell do i want HD radio iclude with my Sat radio equipment that I'm paying for??? some of the additional terms being asked from these 2 struggling companies are outrageous!