If XM goes BK...
I'm surprised at how many (seemingly financially literate) people that I have seem touting the benefits of withdrawing from the merger, or having it denied, and letting XM go bankrupt claiming that Sirius will then have a monopoly on the satellite radio industry and be able to buy up the assets on the cheap.
The whole benefit to this merger is that Sirius will receive double the spectrum. Send XM into bankruptcy all you want, you may get the majority of their subscriber base jumping ship, but it doesn't entitle you to their spectrum. Presumably that would be returned back to the FCC, or re-auctioned. Sirius would have to purchase it, and don't think they would be the only one interest in it. Which leads me to my second point.
Who's to say Sirius would be the only interested party in buying up the assets of XM? And furthermore, do they really have the deep pockets to be competing with a large corporation when it comes to this?
Just some things to think about. Correct me if I'm wrong, I know I don't exactly have expertise in this area.
XM is no more likely to go bankrupt than Sirius -- as of now. And if either go bankrupt, the other has little assets of use for them. They maintain two different systems.
A bankruptcy move would not be followed with a liquidation -- as there will be interested parties in the company, once it is wiped of its debt and some of their contracts.
Those jumping on the XM bankruptcy bandwagon (namely Jim Cramer) have not done their cashflow and financing homework of these two companies.
Plus the spectrum is still XMSRs that would have to be sold to anyone that the creditors want, it would not go back to the FCC. That is a big if there was no one else that would pick the company up for them selves. There is also a big possiblity that ether SIRI or XMSR would have a chance to get bankruptcy protection and be able to come out alot stronger. They would be able to rework the financing and OEM deals that they had before.
There's more than a chance that they would get bankruptcy protection -- I believe it to be a probability. Furthermore, while creditors may have a say of who the licenses are sold to -- any license transfer is still subject to FCC approval; and it must be demonstrated that any new holder will be responsible and be an operator. The creditors can't just say, "them over there"... there's a whole drawn out process.
I don't think it ever gets to that point. I do not believe that GM and Honda will ever let XM get to the bankruptcy point -- their current contracts are too lucractive to them, from a cashflow standpoint. They make a lot of money off of XM. Furthermore, they combine for a couple hundred million worth of equity in XM... which they stand to lose in a bankruptcy proceeding. I see them financing XM, if need be.
With Sirius, Karmazin is too connected. Not only can he get financing, but I believe that he can sell the company to a larger suitor very easily. Not necessarily a CBS, but it could be.
Regardless, I think the BK discusssions are premature and if ever does happen, I expect to see new management, new equity holders and a new company emerge -- one that will likely be stronger than ever.