Friday, April 13, 2007

Goldman Issues Report On Satellite Radio

April 13, 2007

Mark Wienkes of Goldman Sachs issued a report regarding the satellite radio sector.

Report Excerpts:

Slowing gross adds...growing churn.

We are lowering our 2007 subscriber estimates below company targets for Sirius owing to continued slower subscriber growth as retail demand weakens. Industry net additions first fell n a year-over-year basis in second-quarter 2006 and accelerated through the balance of 2006. We expect the full year 2007 net additions to decline again versus 2006 for both operators. Our estimates contemplate greater gross OEM net additions year over year versus fewer retail net adds set against a backdrop of increasing churn.

Valuations likely to remain under pressure.

Satellite radio fundamentals remain challenged and, in our view, will face speed bumps near term before entering a two- to three-year OEM-driven window of opportunity to solidify a position in consumer-supported media. With consensus forecasts still too high and merger uncertainty, we think XM’s and Sirius’ stock price will remain under pressure with increased risk to the downside - especially as many large investors sit out the binary merger situation.

Uncertainty of merger benefits and approval.

As we have stated, merging platforms could deliver significant operational, financial, and strategic benefits, but remains unlikely to pass muster with the FCC, DOJ, and investors under current conditions. Further, we question how much of the cited pro consumer benefits cannot be attained by simply playing nice.

Investment recomendations.

We still prefer XM as the better investment in the satellite radio space given its OEM alignment and lower cost structure set against a discount valuation relative to Sirius. That said, with a fixed exchange ratio tied to SIRI, we are not optimistic that the shares will appreciate, given our belief Sirius' fundamentals will deteriorate and disappoint in 2007 as XM’s did in 2006, with net add growth set to fall and churn rise.

Lowering price targets for XMSR and SIRI. Our 12-month price targets are now $12.75 for XMSR (Neutral), from $14, and $2.50 for SIRI (Sell), from $2.75.

Labels: goldman sachs, merger, sirius, xm

4/13/2007 10:04:00 AM

SSG Has Merged. You Can Read All Of The Latest SSG Content By Clicking Here

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SSG is not a Financial Advisor. Read Disclosure: HERE

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Tuesday, February 20, 2007

Goldman Sachs On Merger

February 20, 2007

Report Excerpts:

XM and Sirius merger announcement arrives…now what?

News XM Satellite Radio and Sirius Satellite Radio announced a definitive agreement to combine in a proposed $13 billion merger of equals. The deal is structured to be tax-free and all-stock that the companies believe can close by year-end 2007.

Analysis

Last week, our detailed report “Conundrum squared: Why XM and Sirius should wait” (2/11/07) walked through our thoughts on a potential merger. The key question now pertains
to approval chances and consequent share price reactions. In our view, merging platforms could
deliver significant operational, financial, and strategic benefits, likely exceeding $4 billion, though mostly years away. That said, we continue to believe that that the merger is unlikely to pass muster with the FCC, DOJ, and investors, assuming current terms. Finally, we caution that
some investors might view the emergence of the merger proposal as a lack of confidence in the
fundamental business outlook as stand-alone competitors.

Implications

The 18% EV discount XMSR trades at relative to SIRI should be cut by 2/3 upon the open.
Assuming SIRI shares trade toward $4 implies $18.40 per XMSR share, less an estimated net 5%- 6% arb discount (10%-12% gross spread less rebate) yields XMSR shares around $17.40, or a 24% increase from Friday's close. This is close to the almost 22% premium assigned to XMSR shares via the proposed 4.6:1 fixed-exchange ratio. We think XM's shareholders are likely to approve the transaction, given the likely lower valuation in the absence of a deal. That said, we question whether the fixed-exchange ratio represents the best possible deal should Sirius' retail sub growth falter and reported churn begin to reflect XM's all-in churn figure in 2007.

Risks

Our probability-weighted, DCF-based 12-month price targets are now $15.30 for XM (Neutral), up from $15, and $2.75 for Sirius (Sell), implying an improved exchange ratio. Risks include subscriber trends, execution, or merger approvals.

Labels: goldman sachs, merger, sirius, xm

2/20/2007 09:39:00 PM

SSG Has Merged. You Can Read All Of The Latest SSG Content By Clicking Here

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SSG is not a Financial Advisor. Read Disclosure: HERE

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Sunday, February 18, 2007

Seeking Alpha: SAC Lowers Stake In XMSR

Several institutional investors have increased their stakes in XMSR (Goldman Sachs, T Rowe Price), however, SAC has recently reduced their holdings:

Seeking Alpha:

SAC Capital: Notable Portfolio ChangesSunday February 18, 8:46 am ET

Lon Juricic submits: While Stevie Cohen's SAC Capital has gone activist in the past, his firm is not know for an activist style of investing. Nonetheless, Cohen is considered one of the best traders in the market today and his movements should be noted. Below are a few interesting trades taken from our report...

...Lowers stake in XM Satellite Radio Holdings Inc. (NasdaqGS: XMSR) from 1,110,777 to 150,000...read more: here

Labels: goldman sachs, sac, seeking alpha, t rowe price, xm