Tuesday, February 20, 2007

XM+SIRI: S and P Likes The Deal

S&P Upgrades XM Satellite Radio to Hold
Analyst Tuna Amobi notes the company's deal with Sirius. From Standard and Poor's Equity Research
XM Satellite Radio (XMSR): Upgrades to 3 STARS (hold) from 2 STARS (sell), Analyst: Tuna Amobi

As recently speculated, XM Satellite Radio and Sirius (SIRI) agree to a $13 billion merger of the rival satellite radio providers. Each XM share would get 4.6 shares of Sirius, whose CEO Karmazin would lead new entity, with XM Chairman Parsons keeping his title. While the deal is billed as a merger of equals, we see an effective takeover of XM by Sirius. But with this duopoly merger likely perceived by many in Washington as anti-competitive, we see little worse than 50/50 odds of closing by 2007 end, as expected. Still, we raise our target price by $7 to $20 on the fixed exchange ratio.

S and P Places Sirius Satellite Radio Inc. 'CCC' Rtg On Watch Positive>SIRI The following is a press release from Standard & Poor's:

NEW YORK (Standard and Poor's) Feb. 20, 2007--Standard and Poor's Ratings Services
said today it placed all its ratings, including the 'CCC' corporate credit
rating, on New York City-based Sirius Satellite Radio Inc. on CreditWatch with
positive implications, following the company's definitive agreement to an all-
stock "merger of equals" with XM Satellite Radio Holdings Inc. (CCC+/Watch
Developing/--). Under the terms of the agreement, Sirius shareholders will own
50% of the combined company and XM shareholders will receive 4.6 shares of
Sirius common stock for each share of XM they own. As of Sept. 30, 2006, the
company had approximately $1.08 billion in outstanding debt.

"If the transaction is completed as proposed, without the incurrence of
additional debt," said Standard & Poor's credit analyst Michael Altberg, "we
would likely raise the ratings as a result of the combined company's stronger
business profile and quicker path to positive free cash flow."

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2/20/2007 05:18:00 PM

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