A federal judge ruled on June 12th that a proposed buyout of Time Warner (TWX) content by AT&T (T) could proceed without conditions in a case where the government was suing to block the deal. The massive $85 billion transaction puts a lot of media power under one roof and that should be music to the ears of companies like Sirius XM (SIRI), Liberty Media (LSXMA) (LSXMK) (LSXMB), and Pandora (P).
It was about a decade ago that the merger between Sirius and XM saw the longest approval process in merger history with arguments that a monopoly would be created. The Sirius XM merger was ultimately approved based in part on the fact that the proliferation of music and entertainment options had risen greatly thanks to the Internet.
These days Liberty Media owns about 72% of Sirius XM stock, and Sirius XM owns about 20% of Pandora stock. In addition, a Liberty Media and Sirius XM combination are making moves in an attempt to gain a 40% stake in financially troubled iHeartMedia (OTCPK:IHRTQ) and its portfolio of the United States most iconic radio stations. One potential worry with all of the consolidation happening between Sirius XM, Liberty Media, Pandora, and now possible iHeart was that regulators might not look upon the moves in a favorable manner.
With AT&T having already absorbed satellite television provider DirecTV and now in the process of gaining content from the Time Warner cable service, the signal is clear. Media consolidation on a large scale is very possible.
Cell companies have all worked various deals that create additional revenue streams, create better consumer offerings, or simply work toward attracting more consumers. In many deals, these companies offer subscriptions to various services as a benefit to consumers. T-Mobile (TMUS) and Verizon (VZ) include a subscription to Netflix (NFLX) with certain plans, while AT&T includes a subscription to HBO. It is only a matter of time before subscription services such as Sirius XM, Pandora, Spotify (SPOT), and T-Mobile also offer streaming of music and video without impacting data limits. Meanwhile, a service like Spotify includes Hulu access. As you can see, some bold moves are being made.
All in all, the news of the court rulings on the AT&T matter have the entire sector looking at M&A activity with a new set of eyes. Companies are continuously jockeying for position, trying to create new top-line growth, and vying for consumer attention in multiple ways. Media is now about having your product lines in front of consumers in multiple ways. Cable video, satellite video, Internet video, Terrestrial music, satellite music, Internet music, and advances in smart speakers all are potential targets for consolidation in some form or fashion.
Sirius XM has already been hitting new 52-week highs for about a month now, and there is real potential that could start assigning a measure of speculative value to obvious consolidation targets. In fact, renowned media analyst Jessica Reif characterized the news of the AT&T decision as one that will "open the floodgates" in the media sector.
Based on this news, there is now a giant BUY SIGNAL in several companies, including those that are already bouncing off of 52-week highs and already near traditional price targets established prior to the news of this court ruling. Specific to Sirius XM, this news could bring about an acceleration of the actions of Liberty Media with regard to its stake in the satellite radio provider. The political climate is now ripe for some other big moves to happen, and there are a select few companies (Sirius XM among them) that make an attractive target for some bold moves. While we have not yet seen new price targets on Sirius XM, I suspect that the current $8 target will see a boost in the near term. Stay Tuned!
Disclosure: I am/we are long SIRI, LSXMA, TMUS.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.