Bear Stearns Bullish On Sirius And Merger
Robert Peck of Bear Stearns is Bullish On Sirius. He sees current prices as an attractive entry point, Likely FCC approval with modest concessions, and $5 Billion in merger synergies.
REPORT EXCERPTS
Sirius Satellite Radio (SIRI-$2.74-Outperform)
Sector View:
The satellite sector includes companies operating in various sub-sectors and at various stages in their life cycle, which present different risk-reward characteristics. Positive Catalysts, Compelling Entry Point
Contrary to expectations, both Sirius and XM shares have declined since the DOJ decision.Investors seem to be concerned about three main issues, which we think are largely unfounded.
• FCC Approval Likely Without Onerous Conditions. One of the concerns is that the FCC may ask Sirius/XM to divest one set of spectrum. However, given this will result in significant dislocation for millions of existing subs, and limited possibility of another potential satellite radio play, we do not think spectrum divestiture is likely. We believe FCC approval is likely over the next 2-4 weeks and conditions could include providing limited carriage to other content providers, a la carte, as well as pricing caps for a specified period of time. Note, the Commission is meeting on 4/10, but satellite radio is not on the agenda.
• Debt Refi Not an Insurmountable Task. XM has to refi debt likely impacting $600M 9.75% notes, $200M FRNs, and $230M sale & leaseback. While the credit environment is not very favorable, we expect MergeCo likely will be able to refi debt (i) by paying some premium to debtholders, and (ii) the new debt will be in a significantly stronger merged company that will enjoy substantial synergies.
Position – Long Sirius, Long XM
Tune in to Sirius Buzz Radio This Thursday at 10:30 PM Eastern
Robert Paeck of Bear Stearns ?? Did they get rid of Robert PECK?
typo…..sorry about that. It has been fixed.
Bear Who??? Bear Sterns does not exist anymore…is this a joke, old report, or what?
CRFCEO….
No joke. Bear Stearns is alive and well still. Yes, JP Morgan is buying them out, but the company still exists. Symbol BSC
cnbc reported today that the share transfer had been completed …
4 weeks puts it past the May 1st extended deadline set in February. I doubt its 4 weeks
All I can say is this is and will likely be the worst investment I have ever made and it will also be the most annoying because none of the analysts have a clue.
Plus they say one thing then when they cant complain about it they say the opposite.
“You should merge”
“A merger actually won’t give any benefit to the company”
I’m sick of listening to it. I’m going to go away and come back when the stock isn’t getting f*cked with on a daily basis.
Tyler, would you like a taking a crack at this series of events to make me understand better?
1. Analysts – “you guys are poor operators and you should merge because we think there is value there”
SIRI/XM – “Ok we see value too… in the multibillion dollar range”
2. Analysts – “We also see in the range of 3-7 billion dollars there, but the odds are very low… around 50% which should weigh on your stock”
3. Analysts – “We see odds improved but likely onerous merger conditions will weigh on the stock”
4. DOJ approval.
5. Analysts – “Now the DOJ approval is complete and there is a larger likelihood of synergies, they likely won’t happen quickly or be significant, although we already stated they would be 3-7 billion”
6. Analysts – “We don’t foresee excessively onerous merger conditions but it’s a perfect opportunity to short the stock”
———–
My predictions:
8. FCC approves without onerous conditions
9. Analysts – “Merger still unlikely to create value.”
10. Siri/XM – “We see x, x, x, synergies broken down by line item”
11. Analysts – “You still don’t have FCF, even though all your metrics are improving and you showed us all these synergies”
12. Analysts – “Auto sales are slowing!! We already accounted for this, but we are still complaining because we need to accumulate”
Then the stock will go down and down until it’s about 80% institutionally owned even though if you valued it based on anything past 2010 cash flows you would get a much higher discounted value because of the contribution margin of each add.
Projecting “synergies” and making them happen are two different things.
Some people may be starting to see the projections were insanely overestimated, and that the work ahead of integrating the technologies of these two systems is a much more difficult task than these mere analysts understood up front. Now, they’re getting the idea of just how difficult it is.
They thought it would be like integrating the IT of two banks or hospitals that are merging, but this is a different kind of problem. Add to that the problem of millions of legacy OEM installs that have to be dealt with, and the claimed synergies just aren’t there. Never have been.
You’re on crack… Most analysts who aren’t short the stock and fearmongering have already identified merger synergies into specific items.
All of those have an NPV.
Maybe the problem is the financial community can just do whatever the f*ck they want and not get punished because they control share price and are therefore “right” by default.
Even if they can’t make synergies they are not mor than 30% worse off than when they announced the merger.
Don’t be a retard, uniting two IT systems has next to no business benefit. Reducing marketing costs in half, having power to negotiate and not inflating content costs is a benefit. Long term, satellite reductions or divestitures are a benefit. I can think of many more.Think of all the general administration that can be cut. R&D can be cut after the initial part (which is probably less expensive than everyone says… there’s a lot of smart engineers out there…)
Anybody who says the stock should be worth nearly half as much as when the merger was announced is a complete idiot.
Ass,
You know what the bottom line is? There are lots of things that the idiot analysts can’t quantify because they assume business as usual, but two times the size. In reality, don’t you think something is fundamentally goign to change if the business doesn’t work as is? If not you’re a moron because the spectrum is a valuable commodity. The 700 mHz spectrum just got sold for 20 billion…How much do you think nationwide drivetime radio ad space is worth on 10 free channels to 50 million cars?
You can tweak multiples, WACCs by 1%, ARPUs by 0.25$, SACs by 5$/year, conversion rates by a couple % and get a really, really shitty looking answer. You can also do the same thing the other way, that’s operating leverage.
What do you think the first thing Mel is going to look at? I guarantee it’s SAC. They already have a plan for ARPU and conversion (a la carte). Anybody who thinks a la carte doesnt create value by the combination of ARPU and conversion is also a fool in the first place.
Are car sales going to go down forever? Last time I checked people will need to drive to work. The fact is, if you don’t add as many gross subs this year, you don’t pay for those subs either so it’s not all bad.
What other bad news could possibly come out? Churn increasing is already expected, auto sales are in the shitter, the companies went down 30% on a merger which will create 3-7 billion in synergies, ARPU is down (because of dealership subs), royalties are increased…
Ass, since you seem to know all the answers why don’t you forecast something new for us all.
Also Ass,
Based on how accurate the analysts have all eben in the past how can you even say this statement with a straight face:
“the work ahead of integrating the technologies of these two systems is a much more difficult task than these mere analysts understood up front. Now, they’re getting the idea of just how difficult it is.”
Who do you think has a better idea of the task at hand?
1. the companies’ engineers
OR
2. the analysts
You’re an idiot.
Hippo, I have already told you why the price was as low as it was the last time you spouted that. A few days later Credit Suisse comes out, basically saying the same thing. That most synergies wont happen for at least two years. Nothing new there, except now it has switched from it being all about the merger to it being all about profitability. Investors are sick of this whole thing, the merger has taken too long. Especially for most speculative investors (who make up most of the share holders in SIRI/XMSR), who lets face it are more so short term investors then long term. I myself am a as long as it takes when it comes to SIRI/XMSR, hoping for another DISH, call me a dreamer.