Goldman Sachs Issues Report On DOJ Approval Of Sirius And XM Merger
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
AHAHA, So let’s get this straight…
EV of 11.7 billion
7 billion of synergies
=18.7 billion in value
~3.3 billion shares outstanding (merged)
= ~5.60 a share
BUT, hold on… they have a target of 2.25…
Can anyone explain this to me?
Does this mean that as soon as FCC approves they will be removed from the conviction sell list due to removal of (2) and (4) catalysts?
Tyler could you comment on this once you get all of the notes up please?
Goldman is simply negative on the sector. Should they see some of their concerns removed, they will likely adjust their stance.
Tyler, as we talked about before they mentioned the financing of the deal. That still has me a little worried. Things have changed from a year ago.