Investor News

In a press release this morning,  the companies expect to agree, among other things, to :

– adopt comprehensive compliance plans, and take steps to address any potentially non-compliant radios remaining in the hands of consumers. This could be a positive for me and a couple of my old radios which may be getting an upgrade!

– Xm will have 60 days to shut down 50 repeaters and shut down or bring into compliance an additional 50 and Sirius must bring into compliance or shut down up to 11 variant terrestrial repeaters that were already shut down in 2006 by Sirius.

Sirius and Xm will also be required to make a voluntary contribution to the United States Treasury of approximately $17 million in the case of XM, and approximately $2 million in the case of SIRIUS. (You gotta LOVE those voluntary requirements!)

This resolution is widely believed to be the final hurdle before the FCC grants the license transfer application of Sirius and Xm.  

Full press release

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Updated news, chat room, and live callers discuss all of the information regarding the sector. Set aside an hour, and join in the show.

Catch up on all of this weeks SDARS action at SiriusBuzz Radio

The National Association of Broadcasters has issued a statement regarding the news reports that the FCC will approve the merger by a 3-2 vote. Once again, the NAB has chosen Executive Vice President David Wharton to be the spokesman, which leads to the question why Rehr is in the back (pun intended). This publication pointed out early on that Rehr was risking a lot by being the frontman of the NAB campaign. Rehr made fighting the merger a central point in his platform. By distancing himself, perhaps the blame pie will not rest solely on him.

Wharton stated:

“This sweetheart deal for Wall Street speculators is premised on a promise that a monopoly will provide consumers with lower prices, better service and more programming formats. Only members of the Flat Earth Society would buy into such specious nonsense.”

A sweetheart deal for Wall Street speculators? Perhaps Wharton was holding the stock chart for these equities upside down. Thanks in part to the NAB delay tactics, this merger has dragged on and on, and investors have actually suffered. Do members of the Flat Earth Society believe that 20 minutes of commercials per hour is good? Is it true that only members of the Flat Earth Society can be members of C3SR? What was their membership again? Oh, they (or you) never did tell us that.

“Just six years ago, the FCC denied a monopoly to the nation’s only two satellite TV companies in a 5-0 vote. Yet today, the Commission is apparently preparing to grant a monopoly to the nation’s only two satellite radio companies that in their 11 years of existence have had more luck flaunting the FCC’s own rules than creating a successful business model.”

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In the last four trading days Mark Winkes, an analyst following the sector has come out with three reports, all of which were negative. The reaction by the street…..yawn

Wienkes has been a satellite radio bear for quite some time. About a month ago he took the price targets on Sirius an XM substantially. At that time the reaction was instant and dramatic. Sirius and XM, hampered by the lack of a decision on the merger, caved on the news.

Oh how the mighty have fallen. Perhaps it was a $5 price target on XM that the street simply viewed as going way over the edge, or perhaps it was that more recently there had been measurable activity on the merger. Either way, the words of Mr. Wienkes seem to no longer shine the way they did a month ago.

The merger news and the FCC seeming to arrive at the conclusion without additional delays seems to have arrested the opinion of Wienkes. Will we see yet another report tomorrow? Only time will tell.

With four of the five FCC commissioners having cast their votes, two in favor and two against, the audio entertainment world is now waiting on FCC commissioner Tate to cast her deciding vote. The events of today actually help us better understand exactly where the merger stands. The fact that democrat commissioners did not wait and delay the process by 10 days bodes well for the process.

Thus we wait on commissioner Tate, and a number of headlines, some of which are Howard Stern type material, come to mind.

• “Tate Is Late, Sirius and XM Expecting”
• “Tate Plays Hard To Get”
• “Tate Will Be Casually Late For The Event”
• “Can’t Consummate Without Tate”

The list could go on and on, but the bottom line is that commissioner Tate is holding all of the cards. In the minds of many, the outcome is already known, it is just a matter of how much Tate grows the pot in the process. Most think that Tate will not be too greedy, but only time will tell.

The positive in recent events, is that once Tate votes, the process is complete. People are now betting on the mindset of Tate, and her decision could come at any time.

Position: Long Sirius, XM.

Analysts have begun to weigh in on XM Satellite Radios second quarter 2008 performance. As expected, it is a bit of a mixed bag, with analysts that have been bullish remaining bullish, and analysts that have been bearish remaining bearish.

Tony Wible of CITI noted that XM had strong subscriber metrics in a weak macro environment. Wible noted that the revenues and operating metrics were in line with expectations. The analyst saw the subscriber metrics as being ahead of expectations. According to Wible the subscriber metrics provide support to their theory that SDARS has not yet reached maturity.

As a result of the quarter, Wible has increased his price target on XM to $11 and maintained a hold on the stock.

Kit Spring of Stifel noted that XM Satellite Radio met or exceeded most of the analysts metrics. Spring was impressed with XM’s churn, which at 1.67% beat Stifels estimates of 1.85% even in what Spring considers a tough consumer environment. Spring states that the churn metric “significantly strengthens the bull case” for XM Satellite Radio.

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Those that follow the satellite radio equities closely noticed some wild trading today. Both Sirius and XM dropped like rocks in less than a minute on what appeared to be no news. Then we all saw what happened. FCC commissioner Copps voted against the merger. But why did that cause a drop? Most were expecting Copps to vote against the merger anyway?

The answer could be a simple as the headline attached to the Copps story.

“FCC Member Votes Against XM-Sirius Deal”

Given all of the recent talk about commissioners Tate and Adelstein, it was only natural that people were expecting their votes first. More specifically, people anticipated that the next vote to be publicized would belong to Tate, and that the companies were waiting on “real” negotiations with Adelstein in hopes that Tate would come through with the last YES vote needed. The headline offered no indication of which commissioner voted, and perhaps some assumed that Tate came out against the deal. Had this been the case, it would have been devastating for the equities, leaving all hopes of a merger in the hands of Copps and Adelstein.

The street quickly sorted out that it was Copps that fired his gun while Tate is still exercising her right to remain silent. The equities rebounded, and now once again, we all “Wait on Tate”.

Things seem to be moving fast and furious, so keep your eyes peeled for SDARS merger news.

Catch all of the news of the week on SiriusBuzz Radio. This weeks show is Thursday at 9:00 PM EST.

Position: Long Sirius, XM.

Before everyone jumps to a conclusion that the merger decision is now complete, I want to caution readers that this piece carries some assumptions, and some reading between the lines. Like a puzzle, you oft do not need all of the pieces to have a general idea of what the picture has in store.

In a filing with the SEC today, XM pre-announced many of their metrics for the second quarter of 2008. As with all quarterly announcements, people tend to focus on items such as subscribers, churn, conversion rates, etc. However, sometimes there is additional language that has some new nuggets that could have important meaning.

I believe that this may be the case with the latest filing with XM Satellite Radio. Look at the filing, skip over the subscriber numbers, the churn, the conversion rate, and the size of the loss. While all of these are important, it is a small item after the loss that grabs the attention.

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The retail; channel in satellite radio continues to stabilize and another month of better than expected numbers has rolled in. NPD Group, which tabulates retail data in many categories has published sales figures for the month on June.

According to Stifel analyst Kit Spring, the retail channel for Sirius was down 3.5% on a year over year basis, while XM’s sales were down 30%. In May, Sirius was down 1 % and XM down 40%. While the results may seem mixed, they are pacing better than the projections outlined by many analysts.

For June, the NPD retail split was 71% for Sirius and 29% for XM. For the sector as a whole SDARS sales were down 13% for the month. For their part, Stifel had estimated a retail drop of 30% for the quarter. Most analysts had estimated between a 30% and 40% drop. With the June numbers in, it is now clear that the retail channel outpaced the street.

Spring noted, “based on our experience with actual versus NPD predicted results, SIRI is
pacing to beat our subscriber estimates for the quarter (254k gross retail additions).”

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FCC Commissioner Adelstein has made statements that there is wiggle room in his position on the merger. According to Broadcasting and Cable, the democrat commissioner has indicated that he is willing to negotiate the terms that he outlined last week.

Adelstein said Monday at an annual Minority Media & Telecommunications Council conference in Washington, D.C., that his conditions were negotiable: “I am always open to discussion about what the best outcome is, so, it is not fixed in stone. I am certainly open to discussion”

Likely the largest stumbling block in Adelsteins proposal centers on the requirement to give up 25% of the spectrum. How far Adelstein is willing to negotiate is anyone’s guess. In my opinion, Sirius and XM are likely concentrating on commissioner Tate, who many view as having a more favorable stance on the merger, and would by extension have fewer concessions.

Many feel that Tate will seek more stringent regulatory control rather than concessions such as a give-back of spectrum.

At this point we have the following:

• Martin: YES
• McDowell: YES
• Tate: Undecided
• Adelstein: Undecided
• Copps: Undecided

Position: Long Sirius, XM.