"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

Here are the key guidance factors:

• SIRIUS is now projecting its subscriber count to be 19.5 million for2008 and sees 21.5 million subscribers at the end of 2009. 
• It islooking for pro forma revenues of $2.4 billion in 2008 and $2.7 billionin 2009. 
• It is reiterating adjusted EBITDA $300 million for 2009…. But itsees an adjusted EBIDTA loss of $350 million in 2008.

As far as the"Best of Both" content, Mel Karmazin outlined what he willbring over.  As far as SIRIUS on XM, it is taking Howard Stern, MarthaStewart, NFL, NASCAR, and Playboy.  As far as XM content onSIRIUS, it is taking over NBA, NHL, PGA, and College sports, alongwith Oprah, The Virus, and Bob Edwards.

Investors didn’t receive this data with exactly the most open arms.Shares are down over 5% at $1.19 today and have traded as low as$1.15.  We have also seen more than 37 million shares trade hands. The prior 52-week trading range was $1.22 to $3.94.  You wouldthink with a tight consumer and a weak as hell auto market in the U.S.that much of this would have already been anticipated.  But the oneissue that the company didn’t make discuss is when it will become profitable.  This also hasn’t given any details regarding its recentsecurity sales nor  has finalized its financialrestructuring needs.  If it hasn’t yet it is likely close to that, butinvestors here are wanting more as there is a huge overhang on the lastbig convertible price.

Jon C. Ogg
September 9, 2008

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

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:

• requiring Sirius/XM to include HD tuners in each unit sold;
• restricting local advertising or local content;
• imposing terms for various pricing/a la carte commitments.

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: 

• In October CNBC ran something about a "bias toward approval" being the case.
• Barron’s sent shares lower in December on concerns it might not work out.
• Both proxy firms Glass, Lewis, & Co. and ISS have recommended for shareholders to approve the deal.
• We’ve even noted ourselves how XM looks like it was trying to make survival plans.

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

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

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.

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.

Dendreon (DNDN) saw much options activity, but that would be expected because of the FDA panel review.  There were some fortunes made and lost on this one.  Of the top 15 options contracts in total trading volume Friday, 10 of the various strike and expiration months of DNDN were there.  This one was so aqctive after the reopen and subsequent 92.5 million shares that it masked some of the other usual options screens.

Brocade (BRCD) saw 22,150 contracts trade in the APR07 $9 Puts.  With the stock still close to its year highs someone is either hedging for 2.2 million shares or they are making a leveraged bet that the good news won’t last.

Traders have some pretty large long-term bets that Vista will be a winner for Microsoft (MSFT) as the open interest in the JAN08 $30 CALLS 337,000 contracts. That represents 33.7 million shares on a fully leveraged basis.  The open interest in the JAN08 PUTS is pretty high as well: $27.50 142,580 contracts; $25.00 156,273 contracts; $22.50 101,299 contracts; and $20.00 222,258 contracts.

Ford (F) has quite a few hedgers and speculators in the options as well.  Out of the 20 largest open interest contracts, 6 of the 20 belong to Ford.

True Religion (TRLG) had much higher than normal options activity as the stock traded 4-times normal volume on buyout rumors.  The company has been a potential “buyout name” for some time, but oddly enough the street wasn’t impresses with its last earnings.  There is also a split in the design area as the CEO and VP of women’s design are calling it splitsville.  Acquiring this company better include the full design team that has made it such a success story since this was as low as under $1.00 in 2004 and now sits at $16.24.

This one may not be the Most Unusual, but BJ Services (BJS) saw 5,648 contracts trade in the JULY07 $30 CALLS.  The open interest in the near-month APRIL07 contracts is more than 50,000 contracts if you combine the $27.50, $30.00, and $32.50 CALLS.  There is still speculation of more mergers being considered in the drillers and service companies in oil and gas, so who knows on this one.

Halliburton (HAL) still has some strange open interest in ARIL07 $40 PUTS/CALLS and it is possible these were either left from the KBR or a trade based on the self-tender.  It is listed as more than 430,000 contracts in each.  With the stock at $31.74 this may have been a large capture trade based on the old KBR spin-out or on the self tender.

Oddly enough, Sirius Satellite Radio (SIRI) is seeing less and less options trading and the LEAPS are much more vacant in open interest than one would guess for such a widely followed and speculated upon stock.  Its merger partner XM Satellite Radio (XMSR) is seeing the same thing.  That is a bit baffling for such a widely followed merger and for such a controversial situation.  The short interest was mostly steady in SIRI in March (123.6M vs. 125.1M in FEB) and grew in XMSR saw its short interest grow (31.2M vs. 28.9M in FEB).  Go figure.

Jon C. Ogg
March 31, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.