Commissioner Tates Silence Is Golden
Be careful what you you wish for, you just might get it. Everyone waits in anticipation of Commissioner Tate’s decision. Speculation runs rampant. Traders want a decision to cash out on the expected rise in the stock price. Arbitrage players wait to cash in on the spread. But what about the investors? People like myself who are investing in these companies for the long term?
Much ado has been made of XM’s 1 billion dollar debt. When the deal was announced back in February of 2007, the value of the deal was nearly 5 billion dollars and priced Xm at a high of about 18.00 a share. The deal has been reduced now to approximately 2.7 billion dollars….A 2.3 billion dollar savings to Sirius investors! At this price Sirius investors are getting a GREAT deal!
We have heard from Copps, Adelstein, Martin & McDowell. If Tate’s vote for the merger was made public this afternoon, the stocks of both companies would presumably rise precipitously. This would continue until the official vote at which point Sirius investors would be paying a lot more for Xm, followed by a sell-off as traders cashed out.
Ironically, the best case scenario for Sirius investors is in fact Tate’s silence up until the official vote. The best case scenario would be a Friday announcement of a completed vote following the markets close. This would enable the board to meet and close the merger over a weekend, and the following Monday morning XM shares would no longer exist. The deal would be done.
Following 17 months of waiting for a decision, patience and tolerance now more than ever, may be in the best interests of Sirius investors, as an official vote may come by the end of the month. 7 days is certainly worth the 2.3 billion dollar savings.
Position: Long Sirius, XM.
Ok. Please don’t laugh at me. But I don’t understand this. Its an all-stock deal, right? What’s the difference if the value of each of these stocks are $.10 or $10,000.00? XM shareholders still get 4.6 of Sirius shares for every share of XM.
I’m sure I am missing something, so please be gentle in telling me why I’m ignorant.
rjr,
wondered the same thing. you are not ignorant. unless it matters on the financial books, I don’t see what’s the difference either. hopefully, the author will post a response to your inquiry.
Simply put, the deal is based on the previous days closing price. If its announced on a friday, the deal is done. The subsequent pop would occur on monday, with the merged company being a stand alone company…
That monday morning, there would be no xm shares…only sirius shares…the deal would have been consumated at the low price preceding the pop in pps.
Still, since it’s an all stock deal, there would be no savings from whatever price it was closed at. There is no debt involved in the deal, so there is no savings. The Sirius holders still get diluted at 4.6 in order to buy XM
There is still a savings to the shareholders — because the “purchase” of XM will still need to be recorded and reflected in the Sirius financials.
When the shares are issued to XM shareholders, they will have a pricetag on them — and the total amount will need to be amoritized to Sirius’ financials as a newly purchase asset (regardless of how the asset was paid for). The expense would likely be amortized over the expect life of the purchase… which would be many years, obviously.
The drop in pps will have a savings of at least $2~$3 billion in lowered expenses being amortized.
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BTW, having 18 months to work behind the scenes on the merger — I would not be surprised to see it close on the same day as the FCC makes its announcement.
Recall the AT&T/BellSouth merger… the FCC sat on it for a long time, until the companies agreed to a final set of concessions with the FCC (that was not publically announced). The next morning the FCC adopted the concession and approved the license tranfers and released the news publically. AT&T & BellSouth closed the merger by 5PM that day… because they had a year to prepare for it.
If XM and Sirius are close to an agreement with the FCC — I imagine that they are already working behind the scenes to have it ready to close faster than you think. The longer they wait to close, the more risk of a disgruntled 3rd party filing an injunction to delay the closing.
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