Wednesday, March 07, 2007

RealMoney.com: Time To Buy Satellite Radio

Time to Buy Satellite Radio
By Richard SuttmeierRealMoney.com Contributor3/7/2007 7:42 AM EST
(This column was originally published on RealMoney on March 6 at 1 p.m. EST. It's being republished as a bonus for TheStreet.com readers)

Investors who have speculated on satellite radio should consider buying both Sirius (SIRI) and XM (XMSR) now. The valuations of both stocks have improved, and this share price weakness has improved the ValuEngine ratings on these names from sell to hold. But two other, more speculative angles on satellite radio -- a bet on the value of the "real estate" orbiting the Earth, and on the value of the satellite spectrums -- makes each worth holding separately, whether the merger happens or not.
When Sirius and XM announced their merger Feb. 20, ValuEngine had sell ratings on both companies. If the deal is approved (currently hoped for by year-end), it would combine two companies that haven't been able to make it into the green on their own into a stronger whole. My speculation is that regulators will approve the deal.
If the Justice Department and Federal Communications Commission approve the merger, XM owners will receive the equivalent of 4.6 shares of Sirius. The FCC would have to allow one company to hold both satellite radio licenses. Former U.S. Attorney General John Ashcroft is lobbying for the National Association of Broadcasters to prevent the deal -- in an about-face after having offered his lobbying firm's services to XM -- but I don't believe his efforts will present a serious threat to this piece of business. Both XM and SIRI are equally attractive. If the deal is approved XM shares are exchanged for SIRI shares at a discount.
Now, while the combined company could succeed by reducing costs (letting Howard Stern and other high-priced talent go elsewhere), I'm more focused on improved valuations. Both Sirius and XM have given up the price gains both enjoyed following the merger announcement -- XM traded at $18.25 in the Feb. 20 premarket and Sirius at $4.20, which seemed unsustainable even then. Both are also now relatively cheap by historical standards...read more: here

3/07/2007 11:13:00 AM

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