Sirius, XM Complete Merger; Investors Still Blue 84 comments
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The merger between Sirius (SIRI) and XM (XMSR) is no longer “proposed”. It is reality. As anticipated, Sirius and XM consummated their deal prior to the market opening Tuesday, and the company has a new name….SIRIUS XM RADIO.
Among the announcements Tuesday morning were:
- Combined Company Has Over 18.5 Million Subscribers, Annualized Second Quarter Revenue Exceeding $2.4 Billion
- Company to Offer Consumers Best of Both Services, While Maximizing Significant Efficiencies
- SIRIUS XM Reiterates Financial Guidance; Expects 2009 Synergies of $400 million and 2009 Adjusted EBITDA of over $300 Million
SIRIUS Satellite Radio and XM Satellite Radio Tuesday announced that they have completed their merger, resulting in the nation’s premier radio company. The new company plans to change its corporate name to SIRIUS XM Radio Inc. The combined company’s stock will continue to be traded on the Nasdaq Global Select Market under the symbol “SIRI.”
SIRIUS XM Radio begins day one with over 18.5 million subscribers, making it the second-largest radio company, based upon revenue, in the country; and, based upon subscribers, the second largest subscription media business in the U.S. With under 10% penetration of the home and car market, the opportunity for continued growth is significant.
“I am delighted to announce the completion of this exciting merger between SIRIUS and XM,” said Mel Karmazin, CEO of SIRIUS XM Radio. “We have worked diligently to close this transaction and we look forward to integrating our best-in-class management teams and operations so we can begin delivering on our promise of more choices and lower prices for subscribers.”
“Every one of our constituencies is a winner. Combined, SIRIUS XM Radio will deliver superior value to our shareholders. By offering more compelling packages and the best content in audio entertainment, we are well positioned for increased subscriber growth. Our laser focus on subscribers will continue and listeners can be assured that there will be no disruption in service. We also believe that the completion of the merger will eliminate any confusion that has been lingering in the marketplace,” added Karmazin.
XM shareholders will receive 4.6 shares of SIRIUS common stock for each share of XM.
Competitive New Options for Consumers
SIRIUS XM Radio broadcasts more than 300 channels of programming, including exclusive radio offerings from Howard Stern, Oprah, Opie & Anthony and Martha Stewart, among others. SIRIUS XM Radio will offer these expanded options to consumers through arrangements with the world’s leading automakers and its relationships with nationwide retailers.
As a result of the merger, SIRIUS XM Radio will also be able to offer consumers new packages in audio entertainment, including the first-ever a la carte programming option in subscription media. In addition to two a la carte options, the new packages will include: “Best of Both,” giving subscribers the option to access certain programming from the other network; discounted Family Friendly packages; and tailored packages including “Mostly Music” and “News, Talk and Sports.” The first of the new packages will be available in the early Fall.
“One of the most exciting benefits of this transaction is the ability to offer subscribers the option of expanding their subscriptions to include the Best of Both services. Given the respective popularity of exclusive programming on both SIRIUS and XM, we expect many subscribers will upgrade their current subscription,” said Karmazin.
“The upside potential for both consumers and shareholders is huge. Consumers have the ease of adding premier programming without purchasing a new device. For shareholders, this kind of organic growth is a key part of the company’s future and the success we expect to see,” said Karmazin.
As promised when the merger was first announced, existing radios will continue to work and every subscriber has the option of maintaining their current service package.
Benefits for Shareholders Begin Immediately, Integration Already Under Way
SIRIUS XM Radio expects to begin realizing the synergies expected from this transaction immediately.
“In addition to realizing significant potential revenue growth, the management team will move quickly to capitalize on the synergies that many analysts have predicted for this combination. We expect to begin achieving those synergies without sacrificing any of the world-class programming and marketing we are known for,” said Karmazin.
The company Tuesday also reiterated guidance for the combined SIRIUS XM Radio. Based upon a preliminary analysis, the combined company expects to realize total synergies, net of the costs to achieve such synergies, of approximately $400 million in 2009; to post adjusted EBITDA exceeding $300 million in 2009; and to achieve positive free cash flow, before satellite capital expenditures, for the full year 2009. The company also expects that both synergies and adjusted EBITDA will continue growing beyond 2009.
“We have all the tools necessary to begin executing as a combined company with high aspirations for subscriber growth and greater financial performance in part from the significant synergies that we begin realizing literally today — on Day One. We are moving quickly to integrate the operations,” said Karmazin.
The corporate headquarters will be located in New York, NY and XM Satellite Radio, the company’s wholly-owned subsidiary, will remain headquartered in Washington, DC.
Effective after the close of the market Monday, trading in XMSR common stock on the Nasdaq Global Select Market ceased.
Investors Sing the Blues
The birth of Sirius XM Radio has many investors singing the blues. The question is how long the street will stay on the blues channel, and will the next channel be more upbeat?
With the converts arbitrage action panning out during the trading of Monday and Tuesday, it may well be that the stock has stabilized, and perhaps even marked a strong bottom that should become a very strong support point.
Many investors still have various questions, and the process of the transition still has a few more days to unwind. XM shareholders will see their accounts have shares that are able to be traded by this Friday. Those that were short XM will need to settle their trade, as the short positions do not transfer over. The XM shares you borrowed to sell short were bought by someone else, who has already (in theory) converted them to Sirius. Because of this, Friday may be an interesting trading day that sector followers will want to watch.
So how does Sirius XM Radio go from singing the blues to rockin’ and rollin’?
Strong fundamentals, good PR, executing the promises as committed, and keeping the street in the loop with guidance that analysts and investors can sink their teeth into. For the past 18 months SDARS has been marching to the beat of whatever suited any particular investor's fancy. A consistent beat will deliver confidence.
Merrill Lynch analyst Jessica Reif Cohen issued a report Monday where she reiterated her $4.50 price target. Cohen is a media analyst, and one in whose opinion I place a lot of weight. According to Cohen, “Strong operating leverage and high contribution from new subs should drive an acceleration in EBITDA and FCF. Improving trends in retail and improving conversion rates in the OEM channel should allow Sirius/XM to capitalize on the more widespread availability of satellite radio in the 245mn U.S. auto fleet. We reiterate our Buy rating and $4.50 price objective for the combined Sirius-XM.”
Cohen sees what is in essence a “THREE-BAGGER” right now. Put a quarter or two of combined operating metrics in the mix, and the confidence of investors in analysts as well as the company can improve.
Sirius XM Radio should schedule an investors conference that outlines initial projections, the path the company is taking, and expectations. This conference should be available to everyone. Investors have a glaring need to know the direction SDARS is headed, and they need to hear it from Sirius XM Radio management first hand. Do not wait for the quarterly call. Do not wait for the annual meeting. Do it now.
The fundamentals will take some time to prove out, but there are activities that can happen now that will also show the strength of Sirius XM Radio. Good PR is key. Getting the news out. Branding the Sirius XM Radio name needs to happen. Get signs into stores, and let the world know that satellite radio has been reborn. That’s all well and good, but other PR needs to happen as well. Sirius XM Radio needs to correct the damage done by the National Association of Broadcasters. They need to prove to investors and the public that the company has integrity.
- Announce the first Open Access manufacturer with pride.
- Announce the informational and minority program with pride.
- Embrace the Public Knowledge’s of the world for their opinion on how to handle the informational programming.
- Announce that those that already have a subscription to both services can now get a family plan rate on one of the subscriptions.
- Announce when the repeater towers are in compliance with pride. Don’t let past FCC discretion jade the vision of the merged company.
- Spell out exactly what lifetime subscribers and those with long term contracts will get for service and why. My opinion is that lifetime subscribers should get the service they currently get, but also get 3 months of the “Best of Both” free as a trial for being loyal subscribers. If someone still has over 1 year left on a contract, give a one month trial of “Best of Both”. This move was not required by the merger, but would help demonstrate that the company is a stand-up company that is looking out for consumers.
Do you hear the music changing? Steps such as these are confidence builders. Confidence is what the street needs. Not just in the bottom line, but in the company. Build a reputation of a premier media and entertainment company, and prove the naysayers wrong by good company metrics, being a good corporate citizen, and reversing the battle fatigued feelings that many SDARS investors have.
The merger is done, and there was a smattering of claps from the street and an undertone of the blues. Management now needs to step up to the podium, and turn those isolated claps into a thundering chorus of WE WILL ROCK YOU! Get the street as well as consumers behind this company so that it can prosper.
This Is The Spirit Of Radio. It is alive in everyone. Kindle the fire, and let everyone know that Sirius XM Radio is the real deal.
Position - Long Sirius, XM
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This article has 84 comments:
That sounds pretty lame.
Questions, will existing equipment in the stores now be able to receive all the combined channels? Is there still any reason to wait to buy? If so, when will this be fixed?
This might be the reason why the stock got hammered: manipulation. The brokers will now get to snack on a lot of free SIRI shares out there from people who won't have the money to cover the call, and then hold the shares for the soon-to-arrive 3 bagger.
I am delivering this grim news so those of you who will be affected are aware and can start making immediate counter-actions. I'd hate to see my fellow longs who suffered through this with me end up with nothing more than a Pyrrhic victory.
I just read " Karmazin added, the company may also consider a reverse stock split. "
Most companies that they did reverse split shareholders got screwed.
Any input will be appreciated.
Opinions differ and some of us will be wrong, other right. Chill out man.
Here is a thought, How many subscribers do you think hold both SIRI and XMSR right now, and are paying the 25.9 each month for both. I have to say, I think the percentage is very very low. Now how many subscribers do you think that have had all the content that they have been exposed to from ether SIRI or XMSR would go down to the 6.99 subscribtion that really only offers music channels. I think that percentage is very very low, as a matter of fact if they would go for that package then chances are there is a big percentage of those that would have (churned out) left anyway. Now how many people that pay 12.95 a month to get one would not mind paying 2 or 4 dollars more to get the SIRI/XMSR you have now plus the best 13 channels from the other. IMO, The al la cart will not only lower churn, but may actually bring up the ARPU. Give them a year and then you will have another price point that will offer, access to both full services, for some higher price.
It already said you were only going to get 13 channels from ether one and that you needed to have an interoperable radio to get all of both.
If others dot like what they read, they can leave at any time.
I
Your logic is right on the familiarity of the XM and Sirius name. I think a lot were expecting a morph or the two or simply dropping XM. ie.. SiriusX. Mel stated that the sole reason for keeping both names in tact was because of the car manufacturer's agreements with both companies. All GM cars have an AM/FM button and an XM button. It was that reason alone, according to Mel, that the XM name was kept in tact.
He also stated that the upgraded package will be $4 and hopefully will be available by the end of September. He would not elaborate or speculate on which channels would be offered in the "cross programming" package. I think it is obvious that Howard, NFL, MLB, NHL and the like would be the candidates.
And stop telling everyone that you already told them. Sheesh... some of us actually think for ourselves and get info from other sources.
I just read " Karmazin added, the company may also consider a reverse stock split. "
Most companies that they did reverse split shareholders got screwed.
Any input will be appreciated.
On the split, I dont know. I am stuck between the two on that one. I dont ever like to see a reverse split. But as you said if it gets it to over 5 then the big players can buy, plus the other added thing is people will be able to use margin if they want to again.
By the way, I do feel bad for the people that owned XMSR with margin money, that are now stuck in the margin. I hate to say it, but remember what I said before about the SIRI down turn be ready again because it may happen again this time because people that had XMSR thought they were not going to have to deal with that problem but are now going to have to deal with it.
The DOJ said they didn't see the combination as harmful to consumers. I am not sure they said it was not a monopoly, and in any event, if they did that's only the DOJ's opinion, and it would be a stupid thing for them to say. SiriusXM is, in fact, a monopoly. They are the only satellite radio provider in this country (I think). What the DOJ said is, it doesn't matter, because in a broader context that monopoly competes for the same ears with a number of other modes of content delivery.
There are probably more fundamental reasons why you couldn't bring this claim. Anyway, all just my opinion.
Now, smart money doesn't care about the price per share as an absolute number. They care about the market cap, the enterprise value, operating margins, etc. etc. If Google does a 100:1 stock split, its stock is now $4.79/share, but the value of the company is the same.
But, if you are a company that can't keep it's share price above $2.00 because you are reporting bad results and worse guidance, and you 'resort to' a reverse split without changing anything else about how you operate, that is usually a sign of desperation. Some may argue that is the case here, but those are likely to be the same people who have doom and gloomed this stock for the past five years, so consider the source.
The merger is done----hallelujah---n... lets see what Mel and others have in mind. Think the company needs breathing room------just think if anyone here had been dealing with this merger for 18 months at the corporate level-----kind of like the lull after the storm.
XMSR stock was exchanged today for SIRI
Long Siri
Mel mentioned this morning that they had to raise over 1billion to close the deal because of XM's woes. He said that was the reason he had the stock sell-off that diluted it a bit. Do you think that is the biggest reason for the drop to 1.50?
That said, if you were just speculating on merger pop, well, bad guess. In the end, there is no difference between short-term trading and playing blackjack with a 'system.' The odds are against you, and the house makes all the rules.
Run Blue Dog Run
As to the stock price. I think it is a combination of things, That as you mention just before, but also people that just want out, that thought they would make a bundle in a year, and now this margin thing again. Plus people playing with the stock. I think all this will pass in a little time. Then the stock will have a rise. I believe Mel and the board will wait for some time, to see what plays out on the stock price, before they decide on a reverse split. IMO there will be no need, but I will know more after I see what the stock is at after a week. That will let all stock problems work themselves out and then an up turn. Mel will wait longer at least a few months. Lets not forget about CPST (I am sure Cramer fans know this one) it went from 6 to under a dollar and took a year to get back to the 3,4 dollar range. There are other examples but I think most know about CPST.
I find it curious that there was so much speculation that sales were down because consumers were waiting for a decision rather than buy obsolete equipment. It was said that no equipment would become obsolete; but it really wasn't made abundantly clear. I just wonder why both companies wouldn't have made huge efforts to get that info out if they beleived that potential customers were not buying subscriptions. Could it have been that Mel and company wanted people to beleive that all content from both companies would be available at $12.95/month?
Now lets move on and up.
Run Blue Dog Run
Long SIRI
fjallfoss.fcc.gov/prod...
A-La-Carte Discussed With FCC
March 28, 2008 (7:24 pm) Tyler Savery
Counsel from Sirius and XM met with the FCC Commissioner and various staff on March 26th, 2008. The topics of discussion centered on merger filings consistent with that which has been discussed in the past. As part of the meeting, Sirius and XM showed the proposed A-La-Carte channel line-up for post merger satellite radio. The company urged the FCC to deliver prompt approval.
Not that A-La-Carte programming was ever out of play, but this meeting would tend to suggest that it is indeed a merger concession that will likely be demanded by the FCC.
Interestingly, the comments urging the FCC for prompt approval, while expected in this situation, would also seem to indicate that the regulator is now to the point of weighing the merger options. This would be consistent with comments made by Chairman Martin that the staff was drafting documents outlining various merger situations.
Reading between the lines, it is possible that various concession options were discussed at this very meeting.
The FCC published their weekly “Items In Circulation” list today, and the Sirius XM issue was not present. At this point it would appear that the FCC is close to rendering their decision. They are meeting with company counsel, and seem to have all relative information in their hands to consider.
I would estimate that the FCC will be delivering a decision sometime in April, and place higher odds on the middle third of the month.
Sirius and XM Filing With FCC
163888 DID YOU SEE THIS? He thinks chapt 11 is the answer for sirius. WHere are these people coming from?
As for changes in programming Sirius XM radio should consider looking into the Philadelphia radio market to aquire the likes of "Preston and Steve". This show has been a huge hit over the last handfull of years and continues to be strong. A definate draw for Philadelphia listeners.
I will say it again, I believe that the savings that Mel said (400 million) was very conservative. First that is Mel, under estimate over perform. Second He did not have a clear insight into XMSRs workings. Look at how much he brought down SIRI cost that will happen with XMSR, Mel is known for this. He comes in and cuts, cuts, cuts. I believe the people at XMSR are scared and are going top be suprised at how much more can be cut. You watch mark this post because by the middle of or end of 2009 that 400 million will go way up to 450 to 550 million.
Now what I dont get, is how analyst can say that, what he said about the 400 million was to small considering what they had thought. Many of them did not even expect any savings in the first year, and when they said 3 to 7 billion. None of them were saying it all would come in even 2 years they all said between 3 and 8 years is when the bulk of the synergies would happen. So when I here Mel say 400 million in the first year and much bigger synergies to follow in the next years. I get a smile on my face, because I personally think, I know what that means.
Secondly, this rumor about the reverse stock split is stupid. CNBC asked him if that was a possibility and he was noncomittal. That is like asking me if I was going to be married to my wife 10 years from now and I said "hopefully" and the paper reported that it was rumored that I was planning a divorce. The naysayers are really out to take out Siri. NAB did not get their way and they now realize that a legal challenge is futile, so they are trying to take out Siri on the internet by shaking investors. You have to shake the wheat from the chaff.
Here's some additional points.
According to Mel on CNBC this morning there's only one subscription service with more than 18 million people today and that's comcast. He also said there is only one radio company with more listeners today and that would be clear channel
Each year, just based on the OEM auto channel alone they'll add about 2 million subs a year each paying roughly $120. That's an additional 1/4 billion of growth per year.
Right now, based on the current 18,000,000 subs they bring in over 2 billion a year and this doesn't factor in any of the growth from the following:
1)
Look for a Music library from the combined entity that dwarfs the itunes selections with minimal additional royalty arrangements. Look for high end tiers that will include 2 or 3 free downloads / month with your subscription. Library will be open to anybody for $.99 / song.
2)
Look for advertising revenues to bump up significantly given the 20 million audience and rising. Also look for 100% penetration, sooner rather than later, as OEM installs increase across the board.
3)
Watch for a clear strategy involving branding and a huge retail push across new hardware for the upcoming holiday season.
4)
This service will soon be re-invigorated on the desktop with new Operating System software.
OEM loaded this software will enhance the capture and delivery of streaming across devices such as the iphone and the new handsets from Nokia and Samsung, extending it's reach over multiple platforms.
5)
Look for this desktop software to include a Pandora like option, relative to the new library, that will be delivered via a streaming format. Structure will either be advertiser sponsored or subscription based.
6)
Be ready for Sirius to challenge Clear Channel, over time, relative to concert promotion and on demand broadcast of concerts nationwide. Both live and recorded. Look for them to include and share revenues with the artists regarding downloads of entire venues.
7)
Watch for expanded video offerings and GPS inclusion in new car installs.
8)
Look for expansion in Western Europe beginning with Britain in 2010 / 2011
IT IS A CASH COW THAT IS ABOUT TO CUT IT'S OPERATING EXPENSE BY JUST UNDER 1/3. IT HAS HUGE AVENUES FOR GROWTH BEYOND THE ALMOST GUARANTEED 10% / YEAR. EACH SUBSCRIBER FLOWS ALMOST COMPLETELY TO THE BOTTOM LINE GIVEN THE NOMINAL COSTS ASSOCIATED WITH HOOKING THEM UP AND DISTRIBUTING THE NETWORK TO A NEW CLIENT. THIS INCREMENTAL REVENUE WILL JUST PILE UP.
IF THERE IS ONE GROWTH STORY LEFT YOU ARE STARING IT RIGHT IN THE FACE! AN ABSOLUTE 10 BAGGER. ESPECIALLY BECAUSE EVERYBODY CURRENTLY DOUBTS IT.
END OF STORY.
Some more possibilities:
1) Along with GPS , look for a Lojack capability.
2) Look for a partnership with FEMA to provide the platform for its satillite-based emergency preparedness and response system channels. FEMA have a budget of over $1B for this purpose but have not been able to deliver.
3) Look for a partnership or major stock buy from Apple, or some other media hungry tech company.
4) Look for a major overseas investor like someone from China or Dubai picking up a large chunk of the stock
5) Don't forget the catholic church or other organized RIBF's wanting a channel or two
The future is wide open. Why do you think turdresstrial radio fought us so hard?
163888, believe me, I'm in this for the long haul; this stock is going to be my Golden Goose. But I just wasn't expecting this POS to go THIS low, I don't think anyone was, so a margin call was te farthest thing on my mind, considering I had sufficient buying power before Monday. It's the 100% requirement that killed me. Above to would have helped. What timing. Can you loan me a couple thou, or shares even?