On President's Day in the U.S., the financial world woke up from a relaxing vacation to the news that XM Satellite Radio (XMSR) agreed to a merger offer from Sirius (NASDAQ:SIRI) to the tune of $4.6 billion, or about 21% premium to XM's Friday closing share price.
The news was not too surprising since merger rumors were circling around Wall Street for months if not years.
So the question is; what should investors do now?
Back on December 16, I suggested that the best, and safest, course of action is to invest in both companies. That way, the investor would be covered either way.
So, assuming you were an investor in both, or one of the two companies, the best thing to do would be to hold on to the shares of the new company (which would still be called Sirius).
What about if you were not an investor in either of the two companies? That is a tough call. Remember, both companies were losing lots of money, not to mention the large amount of debt. So, even after the merger, Sirius would still have a tough time over the next few years trying to slow down the monetary bleeding. But as an investor it would be difficult to ignore the future potential of this company.
Over the next few weeks the hype stemming from the merger news will push up the price of the companies' stock to an overvalued level. In addition, the merger will still have to clear regulatory screening by the government.
In the meantime, the best thing to do is to be patient and wait for a better opportunity. That chance might come several months following federal clearance, when the hype has died down.
- XM or Sirius? Why Not Both?
XMSR vs. SIRI 1-yr chart