DOJ down, FCC to go. How to play the Sirius - XM Merger

So the DOJ finally pulled their legs out of the mud and approved the merger of Sirius and XM. Both stocks felt a nice pop today and it's generally expected that the FCC will soon accounce that it too approves the merger. Once this happens, the path will be clear for these two companies to finally become one.

Now that there is finally some action in these stalled stocks, how should it be played? I particular, for those who got in at lower levels during the last few weeks, should profits be taken or is this now a solid long term investment?

Comments (7)

Mar 24, 2008

does anyone know off hand which firms are advising on this deal? also, do you think this will generate much in the way of fees for said banks, given that people think this merger won't amount to a substantial increase in earnings?

Mar 24, 2008

Wasn't it Morgan Stanley for Sirius and JP Morgan for XM. I think I remember reading that in early 2007. I could be wrong though.

Mar 25, 2008
Shake:

Wasn't it Morgan Stanley for Sirius and JP Morgan for XM. I think I remember reading that in early 2007. I could be wrong though.

That's correct.

Mar 24, 2008

If I am a shareholder of one, what happens to my equity when the two companies merge? Are my shares converted to shares of the new combined firm based on a set ratio?

Not too sure about the fundamentals, but I do think that this deal has potential. Fixed costs will be significantly reduced and programming will improve. They need to work on better distribution - utilize those economies of scale so they can cut costs and throw those receivers into more new cars and homes. But with car sales down and producers looking to pinch every penny to make up for rising commodity costs, things don't look too hot in the 1-2 year horizon.

Mar 25, 2008

There's some interesting upsides to this combination that I see. Simply from the lack of competition with each other now there should immediatly be:

-Lower SAC (Subscriber Acquisition Costs) and advertising costs
-Lower costs of hiring on-air talent
-Less need for additional satellites and maintenance

In addition, with the new a la carte options, the company is opening itself up to a whole new level of consumers. Many people, myself included, didn't see the need to pay $16 a month for the service. However, plans as low as a couple of bucks for a variety of stations is quite attractive. Not to mention, it will now be the one-stop shop for all pro-sports.

I for one see some real upside potential within a year or so. Growth is still occuring at good rates with their auto-suscribers despite lack luster auto sales. I'd expect subsciber growth to increase dramatically when the new options become available. It will also be interesting just how far they take their in-car TV service. The kids channels are a great idea but it should be made available in more than just a select few cars and they should eventually expand the channel lineup.

Despite tons of debt and the fact that either company (combined or not) is probably well over a year away from a positive quarter, I have high expectations that a combined Sirius and XM will make an attractive long-term investment opportunity. If nothing else, it's probably a decent trade off the pop it should recieve with FCC approval marking the official go ahead for the merger.

Just my 2 cent.

Learn More

Side-by-side comparison of top modeling training courses + exclusive discount through WSO here.

Mar 25, 2008

Oasising,

XMSR shares will convert to SIRI at 4.6 XMSR to 1 SIRI...

Mar 26, 2008
Comment