Thursday, January 11, 2007

Merger Speculation is The News Driving These Equities

January 11, 2007

The merger buzz surrounding Sirius and XM continues to swirl. Analysts are releasing notes, and management of both companies talk about the synergies that would be created. With recent events, it seems more and more likely to many who follow the sector. The Fly on the wall even feels that there could be news delivered today on the subject due to the fact that the 30 "quiet period" is approaching.

Some items to note:

- These stocks now trade at near parity on an Enterprise value basis.

- A "buy-out" scenario is unlikely, and a "merger of equals" is more likely. However, one entity is typically the "surviving" entity.

- Many experts believe that regulatory hurdles are not as substantial as once thought, and that a merged company could get approval.

- The possibility of a merger has bolstered these equities, but at the same time ties their hands. Investors seem poised to jump in on the news of a merger. The more difficult gage is what the streets reaction will be if it does not happen.

- Neither company has set a date for the Q 4 earnings call. This is not out of the ordinary, as typically there has been a "waiting game" as to which company will report last. There has likely been enough time to generate pro-formas from which merger negotiations could take place, with audited results coming later to verify the basis.

- The Detroit Auto Show has been virtually devoid of news surrounding satellite radio.

- CES, although new items were displayed, was relatively quiet, and the biggest news out of the show was merger speculation.

With merger being the driving force in PPS action, and news, one has to wonder what will happen if the "carpet" gets pulled on such a deal. Opinions here differ regarding a merger, as they do elsewhere. My position has been that it is the responsibility of these companies to at least give the merger a serious look. That appears to be happening. Whether that serious look will bear fruit is yet to be seen.

1/11/2007 09:10:00 AM

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