Apple's Beats Deal Sparks Rumors Of Sirius Acquisition

| About: Sirius XM (SIRI)


For Sirius, which has over 20 million paying subscribers, there will be some M&A interest.

How much will it take for Liberty to set Sirius free?

Sirius won't command the 60% premium Apple is rumored to pay for Beats.

Sirius XM (NASDAQ:SIRI) continues to affirm the belief that there's never a dull moment in SIRI-Land. Shares of the satellite radio provider closed up more than 2% to $3.27 on Tuesday. But the stock is still down more than 6% year-to-date. But Sirius, for which I've issued a $3.50 price target, has the benefit of a few catalysts.

On Tuesday, management announced that Nowcom would integrate the SiriusXM Pre-Owned Program into its DealerCenter dealer management products. DealerCenter is Nowcom's all-in-one DMS software.

According to the press release, customers who buy a pre-owned vehicle with a factory-installed satellite radio from any of the 4,500 U.S. dealerships that use DealerCenter will receive a three-month SiriusXM subscription. Dealerships can also enroll in the new Pre-Owned program, and they will be able to showcase during test drives all of the benefits Sirius has to offer.

While I do believe this service may have potential, I wouldn't get too excited here just yet. We've been down this road before. Recall, there was also excitement and glowing projections with Sirius' pre-owned car initiatives.

To date, the revenue and earnings benefits yielded by the certified pre-owned program have been nothing to write home about. So it remains to be seen how much traction this program gains. But that hasn't been the only mover of the stock, which has bounced roughly 10% since reaching last month's low of $2.98.

It seems Sirius is still feeling the positive residual effects from Apple's (NASDAQ:AAPL) rumored $3.2 billion deal for Beats Electronics. Since this would be Apple's largest deal ever, the entire market was stunned to hear the details, which were first reported last Thursday by Matthew Garrahan and Tim Bradshaw of the Financial Times.

Not only did this news go viral, given that Apple has track record of having made only small acquisitions, it also elevated the profile of audio streaming rivals like Pandora (NYSE:P), which was essentially left for dead following its 50% stock decline.

The idea is, if Apple is willing to shell out a 60% premium for Beats, which according to Forbes is worth $2 billion, then certainly someone, possibly Google (GOOG, GOOGL), will go after Pandora. On Tuesday, some of that optimism also trickled to Sirius XM.

Benzinga is reporting that Wunderlich Securities analyst Matthew Harrigan, while reiterating a Hold rating and $3.50 price target on the stock, said:

"Although Apple's possible $3.2B acquisition of Beats has few immediate implications, it does show that competition is gravitating toward full ecosystem players such as Apple and Amazon (NASDAQ:AMZN), more so than current music streaming only entrants such as Spotify or even Pandora's 'Music Genome.'"

Harrigan continued:

"Accelerating competition from Apple and other entrants may restrain multiple expansion even as Sirius renews repurchase activity. We also would not exclude Sirius M&A activity, per Liberty Media (LMCA) CEO Greg Maffei's comments."

Basically, Harrigan affirmed precisely what I said last week regarding a potential deal for either Pandora or Sirius. Although Sirius has done well up to this point, growing its subscriber base to well over 25 million, the company cannot compete with Apple or any company that picks off Pandora, which is a rumored target for Google and possibly Microsoft (NASDAQ:MSFT).

For Sirius, which has over 20 million paying subscribers, there will be some interest. The question is, how much will it take for Liberty to set Sirius free? Although Sirius won't command the 60% premium Apple is rumored to pay for Beats, the standard 30% premium puts the stock back to its 52-week high at around $4.20. And if offered, investors should take it and not look back.

Disclosure: I am long AAPL.

Business relationship disclosure: The article has been written by Wall Street Playbook's tech sector analyst. Wall Street Playbook is not receiving compensation for it (other than from Seeking Alpha). Wall Street Playbook has no business relationship with any company whose stock is mentioned in this article.

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