Forbes - Do they Understand The Merger?
April 23, 2007
On a day when the SDARS equities are taking a hit, it is no surprise to see that reporters are jumping on the wagon of coverage. What is surprising is that Forbes today published a video featuring Michelle Steel to talk a bit about the merger, and the reporter clearly erred in the buyout terms of the merger. Not only that, but the Forbes Staff writer she interviewed made no effort to correct her.
Michelle
"Welcome to the Forbes Video Network. We're taking a closer look now at the potential merger between XM and Sirius Satellite Radio. Matthew Kirdahy has tuned in, he's a staff writer at Forbes.com and he knows all about it. Now Matthew, I want to first start out with the share price here.....Now XM Satellite is trading at about $11 and change but the buyout offer is $17 so it sounds like the market is saying, 'this aint gonna happen', whats the analyst community saying?"
Matthew
"The analysts are saying just that, their sharing the pessimism of the investors and we have one analyst saying that the chances are not very good....well two actually, one 11% about and the other lower than 35%."
The interview continues on.......BUT
Where has there ever been an offer for $17????
There hasn't.
The offer is very plain and very simple. 4.6 shares of Sirius for each share of XM. Simply stated, this is an offer for shares....not dollars. The value of an XM share will be determined by the PPS of Sirius. The analysts referred to in the report clearly speak to how the offer is structured in their reports issued today. One has to wonder whether or not the people at Forbes even read the reports that they refer to. How does Forbes miss this?????
While there is indeed a way to value the price of XM in a merger, it is arrived at by calculating the value of 4.6 shares of Sirius. This is the most basic part of the merger. How can a discussion, produced into a video, miss this???? It is actually amazing!!!!!
Now, sentiment regarding the possibility of a merger is low in many circles, and this is reflected in the share price of both equities. Investors should give due consideration as to the prospects of the merger passing when making an investment decision. However, investors should understand the merger prior to making a decision as well......and this Forbes video does not represent the merger accurately at all.
We are not saying that the merger will pass or fail, we are simply saying that getting the information correct in the first place is a very important factor as you consider this sector.
Readers can see the Forbes video
HERE
4/23/2007 03:18:00 PM
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7 Comments:
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How can these analysts say there is not good chance for a merger? Are they experts in anti-trust laws or do they know someone at the FCC? Do they know info not readily available to the retail investor?
By , at April 23, 2007 4:38 PM
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Why doesn't some young aspiring writer research the inaccuracies and slanted reports by the well-known media and publishing companies? They continue to believe we're idiots! Does anyone else miss the late Louis R.?
By , at April 23, 2007 5:24 PM
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Such a story would be interesting, but it would take well known media to garner the respect that a story such as that deserves.
By SSG, at April 23, 2007 5:33 PM
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These people are totally incompetent to analyze these stocks (and probably any other). That's the same thing you get on Cramer's show, and on the Fox News Saturday shows, and pretty much all the others.
However, it isn't as "plain and simple" as that -- you said that the value of an XM share will be determined by the PPS of Sirius.
This, of course, isn't exactly correct. In fact, it may be more accurate to say that the value of a Sirius share will be determined by the PPS of XM. It is a matter of perspective.
The point is, there is nothing "plain and simple" about mergers. What appears to be obvious to one person is not-so-obvious to the next. Even simple mergers are extraordinarily complex, and this one is no exception.
Suppose XM reports excellent numbers between now and the closing, while Sirius continues its decline? Which share price will be controlling? I submit that XM will, not Sirius -- if XM moves to 20, it is going to have to drag Sirius up with it, regardless of how bloody SIRI's #s are in the interim.
By , at April 24, 2007 12:05 AM
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With all due respect.
Saying that XM is dictating the price of Sirius is backwards thinking, and rationally, no one thinks that way.
I think the majority of people would agree that the street does feel great about the prospects of the merger passing.
This is indicated in the share price of these equities, and in the arbitrage play that has been in place since the announcement.
The ratio is 4.6 shares of sirius for each share of XM. The currency here is Sirius shares NOT XM shares.
Your thinking would be illustrative of a strong sentiment of merger passage.
XM is at $11.13. In a backwards method, that would mean Sirius "should be" at $2.42. This is not the case.
The VALUE of XM is dictated by the 4.6 shares. Thinking about this in a backwards manner is not something anyone who follows this sector will do, and no analyst goes through this excercise.....why would you?
IF XM reports good number it will appreciate, but likely will not go past the 4.6 ratio. Good numbers by XM may increase the PPS, but then relative to that Sirius would rise because the company they are buying out has a higher perceived value.
The deal is a share ratio, and the currency is sirius shares. There is no changing these simple facts
By SSG, at April 24, 2007 9:08 AM
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The currency is Sirius shares. That has nothing to do with which stock "controls" the share price.
The market [incorrectly] perceives that XM needs the merger more than Sirius, and that the merger may fail. That is why there is a spread between current pricing and 4.6. If the market begins to perceive that the merger is going to pass, OR that XM is the healthier company, XM will dictate the pricing.
The fact that Sirius shares are the "currency" in the trade is a mere convenience in the way the merger was structured. The companies could have chosen XM shares as the "currency", however, the shape of the merger would have had to change to accommodate it. You are attaching far too much significance to which companies shares are going to survive. These shares will be reissued after the merger is completed in the name of the new, surviving company.
Your apparent misunderstanding of these facts suggest there is nothing "plain and simple" about mergers.
By , at April 24, 2007 10:38 AM
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You can analyze this in circles all day. The currency of the deal is a factor in dictating the controls. It is really that simple.
The market perception of who wants or needs the mereger plays into that process. It seems that your opinion is that Sirius needs the merger less than Sirius. There are many factors to consider in addressing the "need". I would submit that both companies can survive without a merger, and that the merger will build value. At this stage CASH FLOW carries a lot of weight.
I am not the person putting the significance behind the currency of the merger. The street is assigning that value, and the arbitrage is working in that direction.
The surviving company does not really matter in the scheme of things. You are correct, shares will be issued under the new company......however, until that point the market will determine which equity is setting the table for the arbitrage trade. To date, the street is taking the merger currency" as the standard.
Yes, the price of one will play off of the other, but no one can change the fact that vone share of XM will receive 4.6 shares of Sirius. In establishishing the buyout value of XM you need to multiply the sirius share price by 4.6. It really is that plain and simple.
By SSG, at April 24, 2007 11:21 AM
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