Significant Value in Combined Siri/XM from Merger Synergies - Citi

Citi analyst Tony Wible, upon seeing the preliminary Sirius (SIRI) results, sees merger synergies as realizable. While the finalized Sirius numbers are not public yet, the early glimpse issued by the company was enough for Wible to maintain a BUY rating and a $6.50 price target on Sirius.

Wible saw the 2Q08 Pre-announcement numbers as solid, noting, “Revenues of $283 mil (+25.0%) were ahead of our $277 mil (+22.3%) estimate.” Also better than the Citi estimates was the adjusted loss from operations, which came in at ($24) million and was better than Citi’s ($30) mil estimate. According to Wible, the better revenue numbers combined with in-line subs suggest ARPU was better than expected.

Wible noted that the subscriber picture was in line with his estimates, but OEM was a bit weaker than he anticipated, while retail was slightly stronger. SIRI ended the quarter with 8.92 million subscribers on gross subscriber additions of 1.03 million. While the gross number was better than Wibles estimate, the churn came in slightly higher, offsetting the net number slightly.

The Citi analyst also spoke of XM’s (XMSR) announced debt issuance, where the company will offer $550 mil in notes that are exchangeable into SIRI’s stock (likely 4-7% dilution). As part of the deal, SIRI will lend $350 mil in shares to the underwriters, which is solely to facilitate investor hedging transactions, given the inability of investors to borrow SIRI shares, and will not result in any cash to SIRI or share dilution. Overall, Wibble views this as positive and an innovative way to deal with a tough credit market. This method may help the company wrap up the few details needed to allow them to consummate the merger.

Wibble maintains a Buy Rating and a $6.50 price target because they see significant value to the combined company from the merger synergies, citing the strong Q2 results from both Sirius and XM.

The analyst will wait on merger deal closure and full Q2 financials prior to updating their model.

Tyler Savery Position - Long Sirius, XM

Comments

[rockyredwonder]

Tyler, what do you think about Cramer's comments on July 28th?

[chicago gary]

i would like to here thoughts on Cramers talk yesterday. Tyler? 163888? brandon? cos100? killerkaul?

[Siriusly disappointed]

I am disappointed at Cramer's comments. Last week he stated that if someone held Sirius as a speculative play in their portfolio that he supported the stock. Last night he buried the common stock. I anticipate that the common could go as low as $1.50 today. As a long time owner of Sirius I am somewhat more optimistic than Mr. Cramer. I believe that once the merger is over and the rest of the reorganization is complete that the merged entity will prove to be a good investment. However, in the short-term, say the next 6 months, the stock will be dead money.

[Edster]

Tyler all I can say your reports raise optomism. I purchased my 1000 shares of Sirius 4 years ago. The price I paid was $1.62 and it looks like the price will drop to my original purchase price. But I will not sell under no circumstances.

[GJELOSH197]

tyler youve been bullish on these stocks to the tune of a 60+ % loss on them since writing about them and posturing a bullish stance bereft of any common sense..WHO CARES ABOUT THESE GESTPO ANALYSTS WHO WRITE THEIR BULLSH***** BUY RATED REPORTS, because if they had ANY credibility THESE STOCKS WOULD GO UP and NOT continue to spiral LOWER and out of control and make 52 week lows!!! DO YOU ONCE CAST A JAUNDICED EYE AT ALL ON WHAT YOU RELAY TO YOUR READERS, IN TERMS OF THESE ASSANINE ANALYST REPORTS?? someone has a target of almost $7, but when sirius falls to sub $1, then that analyst wil cut the target to $1.75..you know the f**** game and we've seen it all...but i know youre not panicking that badly, you and your 10% overweight position on these stocks

[xfireblake]

I wish I could hold on but I went on margin for the merger and now lost my whole $6000!!! I have nothing because in this wolrd up is down and down is up! what was all the waiting for!?!?!?! F the stock market and every AS OLE that is selling into the profits of the shorts!!!!! F Cramer that back peddling pampas moron!!!!

[jswede]

internet based radio/services will take over before this merger gains any traction... these stocks are dead.

for example, my iPhone is a full-fledged portable internet radio - the barriers to entry are gone. as soon as the internet is standard in cars (and that's right around the corner), the growth is completely gone... the satellite infrastructure is now redundant.

add in Sirius XM's debt and this story is a slam dunk.

[valuestocksonly]

jswede is wrong. Internet will never be standard in cars. Their is no aftermarket add-on for the car. Like sat radio. With the new tougher cell-phone laws internet will never happen.

[Brian R.]

@ xfireblake:

You went on MARGIN for these speculative stocks with all the uncertainty surrounding them?

HAHAHAHAHAHAHAHAHAHAHA...

Ever heard the saying only gamble with what you can afford to lose? Never put a spec stock on Margin. The $6000 you lost might be worth learning that...

[jswede]

no, you're right valuestock, it'll NEVER happen:

www.latimes.com/busine...

gizmodo.com/371116/chr...

and that was from a 3 second google search... your car will be connected to your home and autoshop and more by internet in 2010 -- the kids will be surfing in the back.

So if I already have internet, why on earth would I pay for a separate satellite service...?

[AIG IS A GREAT AMERICAN COMPANY.]

hair pie: The soda will give you a better return. This is a joke, Cramer is a moron. I feel bad for anyone that invests based on his comments. I followed his picks for two months and he constantly changed his mind on the same stock. He is a day trader, how can you listen to him?!!

[stinkaroo]

jswede, I think what people are going to pay for is the content that Sirius XM exclusively delivers not the medium that delivers it. With internet, I now stream Sirius content while inside and Sat when outside. I cant listen to Howard Stern or Jam On without the subscription.

[AIG IS A GREAT AMERICAN COMPANY.]

jswede: I have a huge SIRI position but I agree with you, sad to say but SAT radio is dead!

[AIG IS A GREAT AMERICAN COMPANY.]

stinkaroo: Yes but what happens when Howard retires? And there will be a similar version of Jam On on the net, that you will be able to stream in your car.

[Crest Investor]

Never EVER listen to Cramer. He guesses like the rest of us.
He tells people to buy more shares of a company when the price pulls back and sell off when it pops.
NO WAY! Always, always buy a company hitting new highs and set your stop loss. Hang on to your winners.
He said Sirius would be a winner as it dropped and dropped and dropped. Now look at all the people who lost money because of that moron!

[svosavvy]

Life is hard, if you can't take it then buy some new underpants, a helmet, and bonds. Oh yeah and shut up. Long siri.

[jswede]

stink: you are right. Sirius XM is worth about the price of Howard Stern. Until he leaves/retires/wears off.

Music? last.fm and pandora have you covered. Anything you want.

"exclusive" sports packages? I was listening to the local broadcast of a baseball game from across the country last night on internet radio thru my iPhone... just to see if I could.

[163888]

chicago gary, Ho Cramer, I have to admit while I listen to him less and less because of the calls he has done like this. I actually cant believe he did not at least say I was totally wrong months ago. He brings up things like slow car sales, well that was not a new thing a few months ago. He acts as if the combined company will be force to pay the rates forever. The fact is they will be FCF positive by end of 2009 and most likely profitable by 2010. At that point their credit rating will be better and the credit market will be better (call me an optimist) so they can resell the debt for a lower cost. I started to not like him after he went from saying it was a 6 dollar stock to saying it was a 5 dollar stock. He acted like that was always his target, and did not say he was wrong about that. I then I had commented about that, both here and Sirius Buzz.

[future-guy]

Internet-in-cars may be just around the corner, but the spotty coverage of cellular networks makes it an inferior internet access technology than satellite.

Broadband interactive multimedia entertainment everywhere is the future, but it could be offered via satellite or cellular networks.. I dont see why XM-SIRI would lose the game here.. I think they will have a role to play in "online services in the car" market. I like the deal, coz it will allow XM and SIRI to stop investing time and effort in winning market share from each other in the music distribution business, so that they could invest in other future business possibilities via satellite communication.

[svosavvy]

Ok, I'm in a cranky mood so I will take it out on the cramer haters. For anyone mad because they listened to cramer, there is an old adage 'a poor worksman blames his work on the tools' . I happen to like the idea of cramer (maybe not necessarily cramer the person). He has electrified the masses, and if anything gotten normal people to take an active interest in their own financial well being. If you are a professional money runner this is bad for you, because now you need to come up with more BS in order to doop the masses. Honestly cramer can't hold a candle to the dirty tricks played on unsuspecting clients for years. Professional money runners, I would personally like to thank you for the bang up job you have done on the economy. Here's a tip try actually reading cramers books and not watching tv, he has basically regurgitated the great fundamentals of Peter Lynch. His stock picking may be a little askew.

[163888]

Brian R. I agree with you as you know.

jswede, I have to say that is way to optimistic. Why well first of all satellite radio is already gaining traction. Second how much does that cost per minute for you or do you have a plan that gives you 5000 miniutes for some price that is much more then the regular plan I have a feeling that kind of plan cost more then the 12.95 a month for satellite radio. Second thing is the masses dont have or cant afford a plan of that size to be able to listen to radio. I cant guarantee much, but I can this, internet has a long way to go before they get into cars and be able to carry a constant signal beyond metro areas at a reasonable cost so that most people can even afford it.

[jswede]

"I think they will have a role to play in "online services in the car" market." >>> I don't disagree - they could/will have a role just like anyone else who wants to....

"I dont see why XM-SIRI would lose the game here.. " >>> for starters, because they have $1bil, soon to be $1.5bil, in debt and are still hemmoraging cash... and their internet competitors, who will slash XM's revenues/margins razor thin, will start out with pretty much a clean balance sheet and relatively non-existant barriers to entry.

[stevemcc]

The Street.com(Cramer's home office) has BUY Rating on Sirius
Check this out

www.thestreet.com/stor...

[svosavvy]

Sat rad can survive even thrive if they commit the unpardonable sin. Commercials, I see this scenario like cable in the early 80's. All these cable channels prided themself on being "commercial free" until they found out they could make a lot more money by charging the customer a monthly fee in the front and shoving them full of commercials on the back.

[163888]

hair pie, I buy a stock today, so I dont have to pay what it cost in the future. Are there suprises in this, yes, that is the price of speculating. But lets not forget even Cramer doesn't think it is going bankrupt. This is really the first time I have been 100% positive that these companies will make it, and not go bankrupt. I am not saying I thought it would happen but the possibility was always there. That they would run out of capital before they made it. So to answer your question. You know what I think it will be by 2010. I dont mind paying 1.5 to 3 now, for that kind of return in a few years.

[163888]

jswede, The problem is who pays for it which is the better value. If I have to increase My phone plane to include web time for radio. That plan would go up big time, much more then the 12.95 it cost for satellite radio. You cant get passed that cost barrier until you get to free WiFi everywhere and that has not even really started in most metro areas yet. Hell congress was just pissing and moaning to Martin about How far we are behind Asia, in broadband. and about how many people have it over there. His excuse was that most of them live in condensed areas compared to the US.

[Crest Investor]

Save your $1.50 and go buy a lottery ticket.
How can an investor put a price tag on a company with negative earnings? Not to mention so much debt!
As far as I can see, this is stock isn't worth $.20....sorry to seem so negative but this is a total speculation (lottery ticket) and not an investment.

[ZenInvestor]

Good call! I feel there is way too much wind left in these sails, and Sirius XM will succeed where the two companies could not. I am 'Long' SIRI, and a proud XM customer.

Cramer, well he was supporting Bear Stearns at $60, and few days later they were at $2. I will take his 'curse' as a blessing.

[PDXPatience]

There is too much emotion in this stock right now. Sadly the short term investors are screwing this stock up. People who are invested are blinded by the good of the companies and those who don't own the service bash it because they truly have no idea what SATRAD offers to it's listeners. Someone made a comment yesterday or the day before on one of these articles that was a great point. IPOD INTERNET SATRAD AND TERRESTRIAL RADIO are complimentary products. I love my own music collection so I flip on my IPOD but after 15 minutes I remember the Braves game is starting so I flip on SATRAD, between innings I want to check my local news so I flip on AM. The day a unit comes out that has all of those things is a day Apple, Sirius, and NAB become winners along with anyone who invests. These are all valuable products and services that can live together. My final comment to those who say "why would I pay for radio"... It's $10.88/month for a year for some great programming, why don't you cut back 2 coffees a month from starbucks and try SATRAD, then comment on quality.

[chicago gary]

i bought 3000 more siri at 1.51 this am. I am a long holder. F Cramer and F the analysts. I have more faith in MYSELF,tyler ,brandon ,163888, cos and killerkaul

There will be a party in Vegas. Although it may be in a couple of years

Run Blue Dog Run

[chicago gary]

I bought 3000 more siri this am at 1.51. F Cramer and the analysts. I put my faith in MYSELF, tyler brandon, 163888 cos1000 killerkaul and Mel K

[Scot's Slant]

Scotty here. I have not yet heard what Mr.Cramer said to upset the balance with Sirius stock. However, if he has said something that has put the price in the toilet, I can say I'm extremely dissapointed. After all, HE is the one who verbatim DID say, "if the merger is approved, the price will DOUBLE overnight."

So my question is this: "Mr. Cramer, why would you say something so optimistic, and then while the merger news is less than one trading trading day old, say something that has screens lit up yelling SELL?"

Not good....

Oh, by the way, I almost forgot, there is one more thing: An investor once said, "buy when blood is running in the streets."

Well folks, it doesn't get much bloodier than this so BUY-- just as Cramer's comments manipulated the market and drove the price DOWN, we the shareholders can manipulate the same market by BUYING and sending the market UP. Does anybody really believe that Sirius, with the merger complete and 19 million subscribers, will soon shackle the doors and go belly up? In the long term, who knows, in the short term, this is still a safe bet....

Scot's Slant

[163888]

jswede, What, you got no answer to how much extra it cost to get a cell phone plane to cover the extra web time to listen to radio? Thats what I thought, because you figured out your idea has no merit, when you start to get into things such as that. I also guess you figured out, that you cant cut revenues/margins period much less razor thin from a competing company when the other service cost twice as much in the end to the customer right.


P.S. As to who was getting on Martin it was Barbra Boxer, D, Ca.

[163888]

chicago gary, that party still holds at 4 or 5 years out. I also cant believe I went against my better judgement and bought 4000 more at 1.54. The last time I did that though it turn out pretty good, so what the hell.

Scot's Slant, I hate to say it but I think those people are going to be really mad when they see what it is at in a week or two. What moron would sell at 1.50 a share. They deserve what they got, for being that dumb and being in the market. There are places for them it is CDs, Bonds, and money market accounts.

[svosavvy]

I believe Buffet said buy when there is blood in the streets. This is a flushing of the weak hands. To clarify it is my belief that a "weak hand" is a faithless shareholder, not someone who has a small holding which is myself. long siri

[Siriusly disappointed]

It will be interesting to hear what Mel has to say. He is the main reason I took a position in the stock 4 years ago. I still feel that long term this stock will be a good investment. I agree that anyone selling at $1.50 is completely missing the boat of opportunity. Unfortunately I think the boat will be in dry dock for 3-6 months.

[Served Country for 26 yrs]

Tyler : Just would like your opinion on Jim Cramer's recent change of heart. Specially on his recent video which appeared today regarding the bond holders. How much merit does it have? Thanks

[AIG IS A GREAT AMERICAN COMPANY.]

Scot's Slant: While I agree about buying cheap, you are crazy if you think Cramer's comments had any impact on the stock moving down at all.

[cos10000]

Killerkaul and 163888 did not listen to the Vicar. They are now paying with their losses.

[stinkaroo]

I used Howard as an example of exclusive content. As for similar stations as Jam on being on the net, not tru. XM tried to have similar programming and failed miserably. Sirius' content isn't just about throwing that particular style or genre up, they actually do their homework and put on superior content. Jam on doesn't just play jam band music, they have sit in guests, their dee jays are producers and legendary performers that give insight and behind the scene views that you won't get elsewhere, they have exclusive in studio performances...etc...e... I'm telling you, no one has the content quality that Sirius has... even without Stern. I beleive it will rise to the top becaus of it. Downloading music will not replace good programming...

not to mention the exclusive contracts with EVERY major sport.

Ever travel in a car with a laptop and Wifi/cell cards? Just curious.

[Bret]

Jim Cramer needs to add himself to his Mad Money Wall of Shame. His two-faced recommendation of a SIRI double one day and a losing lottery ticket yesterday is beyond forgiveness. Search the internet for his past SIRI recommendations - he's recommended it as a double when the merger happened many times. He has cost his Cramericans millions with his flip flop recommendations. Does he think his loyal fans are idiots and that they don't see the flip flop? At least he's entertaining... at his loyal Cramerican's expense.