Last evening CitiGroup analyst Eileen Furukawa issued a report on XM Satellite Radio which has sparked the satellite radio sector. Furukawa believes that current stock prices are not reflecting high enough odds for merger success, and that the street is not considering the value of synergies properly.
Furukawa states in her report that there are cost side synergies that represent a savings of 10% to 20% on many line items. She estimates these synergies to be valued at $7.2 billion (present value) or a potential XM share price of about $23. She place a $19.50 price target on XM and maintained her buy rating. Her odds for merger approval in the high 60's%. Furukawa sees a 20% downside risk to her call if the merger does not gain approval, but a 62% upside if it does. A key item to note is present value vs. future value, but that is another article in and of itself.
In evaluating these synergies, Furukawa considered many cost side items, advertising, etc., but did not make any adjustments to exclusive content deals such as Stern, the NFL, Major League Baseball, Oprah, Nascar, etc. The report details several areas to back up the synergies that she reached in her analysis.
Position - Long Sirius, Long XM