"Somebody, Help Me!!! Please!!!"
If you thought that the SIRIUS XM Radio Inc. (NASDAQ: SIRI) situation couldn’t get more complex, it could. It has. Reports of it getting ready for bankruptcy, and then getting a controlling debt investment from EchoStar Corp. (NASDAQ: SATS) and Charles Ergen only made matters worse. And now this morning comes reports that SIRIUS XM is in talks with Liberty Media Interactive (NASDAQ: LINTA).
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"Going, Going, Gone!"
Sirius XM Radio Inc. (NASDAQ: SIRI) is being mentioned in TheStreet.com, New York Times, the WSJ, and elsewhere as either “filing for bankruptcy protection” or that it was “near to filing for bankruptcy protection.”
I had just spoken with Michael Hartleib of SaveSIRIUS.org, a group he leads that’s critical of the company’s strategy. Needless to say, Mr. Hartleib is not too happy. That was why he called us.
Sirius is part of our “companies that won’t make it” for 2009, which is a list of 10 stocks that have operating business but may file for bankruptcy protection or worse. Bankruptcies are almost good for shareholders of common stock. Not unless they need a big tax write-off against capital gains.
Hartleib has also noted some issues about conflicts of interest over the SIRIUS debt purchases by EchoStar Corp. (NASDAQ: SATS).
Jon C. Ogg
February 10, 2009
Goldman Sachs has panned satellite radio stocks and maintained a cautious "Sell" on XM Satellite Radio (XMSR). What is interesting is that Goldman Sachs has also noted that its channel checks have indicated that it now appears "less likely that the DOJ will block the merger" with Sirius Satellite Radio (NASDAQ: SIRI). But it also believes that deal or no deal, XM/Sirius shares would run up and mark near-term highs just like last year when the merger was announced.
This note even says that merged or un-merged, Goldman Sachs outlook for cautious based on unrealistic cash flow expectations.
Earlier this week we also saw Stanford indicate how it believes a merger approval from the DOJ is likely imminent.
Jon C. Ogg
February 15, 2008
There is an interesting note out of Stanford Group Company’s Paul Gallant calling for the likely approval of the merger between Sirius Satellite Radio (NASDAQ: SIRI) and XM Satellite Radio (NASDAQ: XMSR). The research note states specifically "We believe the Department of Justice (DOJ) is near a ruling on the XM-Sirius merger, and we reiterate our belief that it is likely to win regulatory approval. "
It also noted a last ditch effort of an opposition group meeting with the DOJ and notes this is usually parties who are likely to lose the battle. "As for timing, DOJ’s ruling could come any day now. Shortly after DOJ rules, we expect FCC Chairman Martin to recommend to his fellow commissioners the same outcome reached by DOJ. "
While this is a belief in support of the merger, Stanford does not conditions will still likely exist:
This merger has persisted almost exactly a year and has been one of the more fought over mergers from alleged consumer groups, although the defiant RIAA is opposing this more from a self interest than from a consumer protectionist group. As always, follow the money and you don’t ever have to go too far.
Sirius shares are up 1.1% at $3.175, although shares were up as high as $3.25 today. XM shares are up roughly 2.2% to $13.00, although it has traded as high as $13.35 today.
Please keep in mind that speculation on this has gone on and on:
Both stocks were higher earlier in the day. It is the belief of 247WallSt.com that no such concerns over competition are merited. We also believe that this merger must go through for at least one of these satellite radio providers to survive, and that was our feeling before Joe Q. Consumer decided to start slashing and burning routine $8 to $100 regular monthly expenses where possible. On last look there was a greater than 12% merger-arb spread on this merger, so it is still far from a done deal according to Wall Street and actual trading capital.
If this merger is actually and finally close, stay tuned. There are going to likely be some large stock price changes either way.
Jon C. Ogg
February 12, 2008
CNBC just had some back to back coverage regarding Sirius Satellite Radio (NASDAQ:SIRI) and possibly of XM Satellite Radio (NASDAQ:XMSR). We’ve been closely monitoring this merger and it just seems that at least the chances of a "bias toward approval" have increased at least a bit.
David Faber got to interview Sirius’ CEO Mel Karmazin. Karmazin noted to Faber that both Sirius and XM have each sent in 6 million pages of documents to the regulatory agencies and have communicated with the FCC. Karmazin said he thinks the chances should be 100% that the deal closes in his opinion, but he wouldn’t give any formal percentage chances that the merger would really pass regulatory scrutiny. The backup plan is sort of a business as usual if the deal does get blocked. The truth is there wasn’t really anything new in the interview.
Shortly after the David Faber interview, Jim Cramer came on CNBC (with a slur from root canals) discussing this and said he thinks the companies will get the deal done and that could get it to a $5.00 stock.
We’ll know fairly soon if this will occur or not by the end of the year. We have covered this ourselves with recent notes about the chances getting higher that the deal could close. One thing is for sure though: If the DOJ blocks this merger, XM and Sirius are both likely to announce substantially higher monthly prices to remain viable. We recently noted how it sure sounded like the XM group was preparing to operate as its its own entity.
We have reviewed this merger on and off, but have not yet made any formal calls for our Special Situation Investing Newsletter subscribers. It is our opinion that the deal SHOULD be approved based upon other approvals, but ultimately this is at the mercy of too few key people that are deemed as being heavily under the influence of terrestrial radio lobbying to be able to make the "SHOULD" status become a "WILL" status. The government has rubber-stamped just about every single "inside the US merger" and the influence from the radio industry is what has been holding this up; and the DOJ recently requested more data. We have been reviewing Sirius and XM for the subscriber newsletter but have yet to make a determination we’d be willing to sign our name to. An analyst opinion is one thing, and a decision from the government is another.
Shares were up 1% at $3.58 before the call, but Sirius shares are now up 2% at $3.62 on over 33 million shares today after the two segments.
Jon C. Ogg
October 15, 2007
This morning, both Sirius Satellite Radio (NASDAQ:SIRI) and XM Satellite Radio (NASDAQ:XMSR) are trading lower. It appears that a key analyst that had been a defender of the keep has decided to cut bait. UBS has downgraded both companies from its "Buy" rating down to "Neutral."
Back on April 27, UBS raised both ratings to a BUY 2 after Lucas Binder said that Sirius would have better cash flows in 2008 than XM.
Just recently we noted that the bias was tipping toward an approval from regulators, although we also have recently noted after the big run in the stock that the future model will still dependent upon subscriber growth to be a winner based on the price caps.
Shares this morning are trading lower on SIRI by 2% at $3.43 on active volume and XMSR shares are trading down 0.7% at $14.72 on very thin volume.
Jon C. Ogg
September 19, 2007
Jon C. Ogg produces the 24/7 Wall St., LLC Special Situation Investing Newsletter; he does not own securities in the companies he covers.
We have been steadily reviewing all of the trading in stock and options in shares of both Sirius Satellite Radio (NASDAQ:SIRI) and XM Satellite Radio (NASDAQ:XMSR) to look at the probability of the pending merger successfully closing.
The open interest in the XMSR JAN-08 $15 Calls is over 60,000 contracts alone (equivalent to 6 million shares), and that is the month to watch because the bias of regulators and the outcome should be known by the end of this year. This is from old volume that has carried over, but the JAN-08 $5 Calls in SIRI still has over 280,000 contracts listed in the open interest (equivalent to 28 million shares). As far as trading volume in the stocks, this has also been impossible to ignore. Shares of both stocks are up roughly another 4% today. SIRI at $3.45 is more than a 15% gain in only two weeks; and XMSR at $14.10 is up over 20% in the same time frame.
Last week may have marked another turning point that tipped the bias toward XM & Sirius being able to overcome the regulatory hurdles to getting this merger approved. That National Association of Broadcasters has been fighting this with fervor, but the chances of them blocking this merger may be dwindling even after some senators tried to go against this earlier.
This morning on CNBC, Jim Cramer stated "this deal goes thru!" and he thinks that the shares of Sirius go to $6.00 when this closes. If the deal doesn’t get done, then it will fall to $2.50. But he also notes that there is still something to Sirius, meaning that it won’t implode if the deal fails. We noted the financing pact a while back that may have been a harbinger for the same.
Please note that there are still many "IF’s," "MAY’s," "possibilities," and the like. So it is far from a done deal even if Jim Cramer endorses it. 24/7 Wall St. thinks that the deal should be allowed to go through, because one of these may fail if not and we think that higher prices will immediately come into play for subscribers if the deal is blocked.
This ball is still in the court of the regulators, and they are becoming less predictable than the rubber-stamping regulators of even last year. It does not seem possible to state a certain outcome here because of the unknowns and the variables, but the bias has tilted back in favor of the merger.
Jon C. Ogg
September 12, 2007
Jon Ogg can be reached at jonogg@247wallst.com; he produces the 24/7 Wall St. Special Situation Investing Newsletter and does not own securities in the companies he covers.
Shares of SIRIUS Satellite Radio (NASDAQ:SIRI) are trading up roughly 2% a day ahead of earnings, and this is likely due to a somewhat stabile market after last week’s market slide. The satellite radio provider is expected to post a loss with -$0.10 EPS and $228.3 million in revenues, according to First Call.
Its hopeful XM Satellite Radio (NASDAQ:XMSR) merger partner posted a gain of 338,000 net subscribers in Q2 with its earnings last week, and its cost per new subscriber increased to $121 per new subscriber (up from $112 a year ago). Unfortunately we all know what happened last week in the stock market, and XM saw shares fall almost 8% on those earnings. Sirius shares reached over $3.20 again over the last 10 days, but the market slide took its stock back under $3.00.
Unfortunately for the stocks, both of these are in serious limbo until a merger outcome is somewhat known or at least closer to a yes/no verdict. We already know that Hugh Panero is leaving XM either way on August 10. We also got to see the proposed new pricing plans on a post merger basis just last week. And we also know that Sirius is bumping its Chrysler installs from being in 40% of 2007 models to 70% of 2008 models.
Forbes put Sirius’ subscriber adds higher at 295,000 for Sirius this last quarter. This one really boils down to the merger, and unfortunately that is still no closer to being known with or without an earnings report. Mel Karmazin has already secured some financing packages that would be needed if this merger can’t close, but unfortunately this one still acts like it wants to be in limbo by analyst reads and by the chart until an outcome is closer or more finite either way.
One of the few metrics that could be a focus outside of the merger is the cash flow from operations. During Q4 last year the company did post positive cash flow, but its Q1 2007 was again negative $133.9 million in cash flow. With the new financing secured and the $360+ million in liquidity as of last quarter, we can at least expect to see more projections later in the week of "time to zero cash in various scenarios" from analysts.
If Karmazin & Co. can turn on his charm and draw attention to the actual results and on its own internal expectations, it might at least be able to keep the focus from Wall Street being only being pointed to the merger. Unfortunately for both companies, most eyes are also going to be focused on the big board screens to make sure the market isn’t in freefall mode. The satellite radio provider hosts a conference call at 8:00 AM EST Tuesday.
Jon C. Ogg
July 30, 2007
Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.
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