Goldman Sachs has issued a report on the DOJ approval of the merger between Sirius and XM

REPORT EXCERPTS

DOJ approval removes a hurdle, for the companies and short-sellers

Source of opportunity

We are adding SIRI to the Conviction Sell List with 30% potential downside to our unchanged $2.25 12-month price target. With the “DOJ Catalyst” now behind us, we believe the current share price does not reflect (1) a lowered base cash flow outlook; (2) the effect of potential FCC conditions, and, as a result, near-term executable synergies; and (3) possible near-term liquidity hurdles. We think the combination of (1) and (2) increase the risk of significant dilution attached to (3), particularly if it is necessary to refinance the +$1 bn of XM’s putable debt and raise new working capital given the status of the debt markets and continuously declining forward estimates.

Catalyst

We believe SIRI shares, having closed at $3.15 following the DOJ approval, have likely marked a near-term high, similar to the $3.75 February 2007 peak upon deal announcement. Given a combined $11.5 bn EV and $7 bn of implied synergies, we recommend investors sell SIRI shares to take advantage of likely: (1) continued deterioration of fundamental trends; (2) recognition of potential FCC conditions and integration risks; (3) unfavorable debt refinancing; or (4) de facto FCC rejection of the deal. With the DOJ approval now out of the way, the primary obstacle cited to shorting the stock has also been removed, with the market now more apt to apply a more appropriate valuation relative to the opportunity.

Tyler Savery Position - Long Sirius, Long XM