SiriusBuzz

Goldman Sachs has issued a report on the DOJ approval of the merger between Sirius and XM

REPORT EXCERPTS

DOJ approval removes a hurdle, for the companies and short-sellers

Source of opportunity

We are adding SIRI to the Conviction Sell List with 30% potential downside to our unchanged $2.25 12-month price target. With the “DOJ Catalyst” now behind us, we believe the current share price does not reflect (1) a lowered base cash flow outlook; (2) the effect of potential FCC conditions, and, as a result, near-term executable synergies; and (3) possible near-term liquidity hurdles. We think the combination of (1) and (2) increase the risk of significant dilution attached to (3), particularly if it is necessary to refinance the +$1 bn of XM’s putable debt and raise new working capital given the status of the debt markets and continuously declining forward estimates.

Catalyst

We believe SIRI shares, having closed at $3.15 following the DOJ approval, have likely marked a near-term high, similar to the $3.75 February 2007 peak upon deal announcement. Given a combined $11.5 bn EV and $7 bn of implied synergies, we recommend investors sell SIRI shares to take advantage of likely: (1) continued deterioration of fundamental trends; (2) recognition of potential FCC conditions and integration risks; (3) unfavorable debt refinancing; or (4) de facto FCC rejection of the deal. With the DOJ approval now out of the way, the primary obstacle cited to shorting the stock has also been removed, with the market now more apt to apply a more appropriate valuation relative to the opportunity.

Tyler Savery Position - Long Sirius, Long XM

Lehman issued a report today on the DOJ approval of the Sirius and XM Merger.

REPORT EXCERPTS

Investment Conclusion

The Department of Justice has approved the XMSR/SIRI merger without conditions. We expect the FCC to approve the transaction as well (FCC has never rejected a DOJ-approved merger); timing is unclear, but likely next 2-4 weeks. We believe synergies are material ($3-7BN NPV). Expect stock to be volatile as market awaits final approval, attempts to assess appropriate post-transaction valuation forcombined company. Prefer XMSR to SIRI at these levels given that current prices retain 5% deal spread.

Summary

DOJ has approved the transaction. Approval commentary indicates that DOJ viewed competition in OEM as already limited (due to provider lock-in), and that deal would not materially reduce competition in the retail segment. DOJ expects substantial cost efficiencies from transaction. Long-term, approval notice expects new competitive offerings, particularly wireless broadband, to be material. We expect the FCC to approve the transaction in 2-4 weeks. Remains unclear if any concessions beyond the a la carte pricing the companies have already offered will be required - we do not expect companies to be asked to give up spectrum, as some have requested. We believe deal synergies are large, but back-end loaded. Near term benefits come from reduction in overhead. Medium term cost benefits include lower cost radios driven by scale economics (highlighted by DOJ), lower marketing cost due to lower need to promote inretail market. Long term benefits include lower branded programming costs and lower OEM costs due to improved negotiating leverage -satellite network savings are very long term due to large installed base of single-provider radios.

Tyler Savery Position - Long Sirius, Long XM

Citi analyst Eileen Furukawa issued a report on the DOJ approval of the Sirius and XM merger.

REPORT EXCERPTS

Sweet Music to Their Collective Ears

 Still Need FCC Approval But Likely Clear Sailing From Here — As we’d hoped, after over 1 yr of hard fought work, XMSR & SIRI have finally received approval from the DOJ. While FCC approval is still required, we believe it is highly unlikely FCC approval will not be forthcoming shortly, most likely in April.

 Concessions Likely, But Expect Spectrum Is Off the Table — We believe that FCC approval will likely be given only with concessions. We also feel XMSR and SIRI are committed to getting the deal done and thus are amenable to reasonable concessions incl. specific timing req’ms around a la carte pricing. But, we currently don’t expect spectrum concessions will be part of the deal.

 Continue to Believe $6 to $7 Bn in Synergies Possible — We continue to standby our prior line-by-line analysis that suggests the combined satellite entitycould achieve present value cost savings of $6 to$7Billion with 10-20% savings across customer service, programming G&A, R&D, Sales & Marketing, etc.Further, while we do not assume revenue synergies, a combined XM/ SIRI could drive higher ad revenues given larger combined reach. Also, we conservatively did not include cap ex savings from migrating to one system.

Tyler Savery Position - Long Sirius, Long XM

Tom Watts of Cowen issued a report today on the DOJ approval of the merger between Sirius and XM.

REPORT EXCERPTS

Wedding Bells At Last. DoJ Approves Merger. FCC Approval Expected Soon.

Conclusion: Yesterday, the DoJ approved the XMSR-SIRI merger, setting the stage for an FCC approval in the next few days, and a deal closing should happen immediately thereafter. On its Q4 call, SIRI indicated it would provide combined company guidance for FY08 following closing. We maintain our Outperform rating on both companies, and expect synergy guidance, plus visibility of 2009/2010 FCF, to drive continued N-T outperformance.

■Approval As Expected. Last February, when the deal was originally announced, we projected a 70% likelihood of approval — a Street high. The DoJ’s comments yesterday confirm our view that XMSR ($13.79) and SIRI ($3.15) operate in a broadly defined market which includes terrestrial radio, digital music players and other sources.

■FCC Concessions Likely to Be Small. With the DoJ process complete, we expect the FCC to announce its decision shortly. We expect approval of the merger, with several modest concessions consistent with proposals from both companies. These include price controls, a la carte program packages, and access to public interest programming.

■Integration to Begin Immediately. Given shareholder approval back in November, and the long-time each company has had to plan, integration should begin swiftly. We expect immediate savings from SAC and G&A. Renegotiation of deals with OEMs in the next few years could improve margins substantially. Ops improvements will take longer due to the different satellite technologies.

■FCF to Drive Valuation. We project 2010 FCF/shr of $0.22. SIRI should trade to >25x this number in the next 12-18 months. At the 4.6x exchange ratio, XMSR still trades at a 4.8% discount, creating a near-term opportunity

Tyler Savery Position - Long Sirius, Long XM

Lucas Binder, an analyst for UBS issed a report today on the DOJ approval of the merger between Sirius and XM

REPORT EXCERPTS

Higher Likelihood of Merger Completion

SIRI-XMSR merger approved by DOJ; FCC could approve in early 2Q08

Following the approval of the SIRI-XMSR merger by the DOJ, we believe that the FCC could announce a ruling by early 2Q08. While neither SIRI nor XMSR has given guidance on what potential synergies may exist, we analyzed some key metrics in the combined business.

Projected pro-forma impact on 2010 multiples

We focus our analysis on the reduction of duplicate costs, specifically by lowering XMSR’s 2010 expenses. Using the midpoint of our assumptions, including the elimination of the XMSR marketing budget, reducing XMSR’s G&A by 50%, Programming and Content by 15% and R&D by 20% the combined company’s 2010 EV/EBITDA multiple decreases to 19.9x from 43.0x and 2010 P/FCF multiple decreases to 20.4x from 59.2x.

Tyler Savery Position - Long Sirius, Long XM

Wachovia issued a report today on the DOJ approval of the Sirius and XM merger. Wachovia remains cautios on the SDARS sector.

REPORT EXCERPTS

• DOJ APPROVES SIRI/XMSR MERGER- The Department of Justice (DOJ)announced late Monday afternoon that it had finally approved the merger of SIRI and XMSR after more than a year of deliberation. In a statement released by the DOJ, it concluded that a merger between the two satellite radio companies “posedno harm to competition and that there was no potential harm to consumers from the two companies combining”. With the DOJ decision now out of the way, FCC approval would appear to be a foregone conclusion. There are likely to be material conditions attached to this deal that will be released when the FCC officially rules on the deal (expected by early April at the latest) which could include a la cartepricing, a price freeze, and spectrum givebacks. XM shares are currently trading at an implied 5% discount to SIRI’s 4.6 share (for each XM share) offer.

Tyler Savery Position - Long Sirius, Long XM

Robert Peck of Bear Stearns issued a report today on the DOJ approval of the Sirius and XM merger. Peck carries a $5.50 price target for Sirius, and a $24 price target for XM.

REPORT EXCERPTS

Finally! Justice Delayed, But Not Denied

As expected, though long overdue, the DOJ announced that it was closing its investigation of XM’s merger with Sirius, in other words approving the deal from an antitrust perspective.

· FCC Approval Next. With shareholder approval in November 2007, the only regulatory step left is the FCC approval, which we think is likely over the next 30 days. Note, the FCC and DOJ likely coordinated their decisions, hence approval is not likely in question. The FCC Chairman has stated that he has a very favorable opinion of the a la carte pricing schema proposed by Sirius and XM. As a result, we do not think the FCC’s conditions to the merger are likely to be onerous.

· Debt Refi - The Next Step. At its 4Q07 conference call, XM had disclosed that it was in discussions to potentially refinance debt with change of control provision likely impacting $600M 9.75% notes, $200M floating rate notes, and $230M satellite sale & leaseback debt. While the credit environment is not very favorable, we anticipate the companies will be able to refinance the existing debt even if they have to pay some premium for rolling over the debt to the merged company.

Tyler Savery Position - Long Sirius, Long XM

Do you think that Jim Cramer had a comment today on the Sirius and XM merger? You bet, the popular CNBC host applauded the DOJ decision to approve the merger, but also cautioned that the deal needs FCC approval. Cramer, who now puts a $5 target on Sirius outlined some concerns regarding the FCC decision. Cramer’s target for Sirius would imply a $23 target for XM.

Simply stated, Cramer feels that the FCC may be tempted to block the deal. Cramer’s solution…CONTACT THE FCC. Cramer is calling on consumers to let the FCC know that they want the merger approved.

It is certain that those against the merger will step up their efforts after failing to sway the DOJ to their side. Those against the merger now have one last shot to get the deal blocked, or at least chase their wish list of concessions. Now it is upon consumers to ensure that the FCC understands that consumers want the merger, and not just a few, but a large number of consumers want it.

Consumers can express their opinion, and should do so by visiting SiriusMerger or XMMerger

Position - Long Sirius, XM

With the Department of Justices issuing a no strings attached approval of the merger, U.S. Electronics, a former hardware supplier for Sirius (XACT) and XM is asking that the satellite radio providers be required to open up access to their technology. Such a move would make the manufacture of satellite radios available to any manufacturer that chooses to participate.

At this point one can reasonably expect a flurry of activity in filings with the FCC. Consumers should fully participate in this activity by voicing their own opinions. They can do so with ease by visiting SiriusMerger or XMMerger

In a press release issued today, the disgruntled former hardware partner is now seeking open access via the FCC.

U.S. ELECTRONICS URGES ‘OPEN ACCESS’ CONDITION

In light of the Department of Justice’s approval of the merger between Sirius Satellite Radio and XM Satellite Radio, U.S. Electronics is asking the Federal Communications Commission not to approve the merger without a condition that ensures that any satellite radio hardware can access the satellite network. This ‘open access’ condition would allow consumers to continue choosing whichever device they prefer to use to connect to satellite radio networks.

U.S. Electronics’ proposed condition is similar to one recently imposed by the Commission upon companies planning to bid on portions of the Upper 700 MHz spectrum now being auctioned. And U.S. Electronics has not been alone in calling for ‘open access’ — a number of consumer groups and business interests have included the ‘open access’ condition in recent filings with the FCC, including:

• Public Knowledge
• Media Access Project
• New America Foundation
• National Association of Telecommunications Officers and Advisors
• iBiquity
• HD Radio Alliance

Continue Reading »

Now that the Department of Justice has rendered their decision regarding the merger of Sirius and XM the next logical question is when the FCC will make their decision. The answer is another great unknown in the world of satellite radio. Speculation ranges from days to weeks, and no one really knows. However, there are possibilities that may give hints as to when activities may happen.

1. FCC Chairman Kevin Martin has expressed that the staff at the FCC is drafting outlines with various merger outcomes. This would indicate that there is likely some time yet before a finalized decision is reached. If there was a sense of urgency, then those reports should be available by the end of this week. Leave at least another week for review, and the FCC decision is a Q2 event.

2. FCC public filings are nearly exhausted. Those for and against the merger have exhausted any information that can be brought to the table. At this point all information is in hand at the FCC. There could be some jockeying for position amongst commission members seeking additional concessions, or simply prolonging the process. Even if a notice is filed announcing a pending vote, dissenters can prolong the timeline for at least 30 days if they choose to do so.

Perhaps more important than the timeline is the concessions that may be asked of Sirius and XM. With DOJ approval on a broad base, and without any stipulations, the challenge for the FCC is now bigger. It is now the FCC that will determine the shape of the audio entertainment landscape going forward. The FCC has never gone against the DOJ in matters such as this. It would be highly unlikely that this will happen now. Thus, the situation boils down to concessions. Here are some things to consider:

Continue Reading »