April Horace of Janco issued a report today on Sirius satellite radio. The report sees the recent news regarding 8 minority channels as a positive for the merger. We indicated this in two stories when we broke the news yesterday, Big News On Satellite Merger - 8 Minority Channels and 8 Minority Channels Good For Merger Deal. Horace rates SIRI as accumulate.
Waiting on the FCC
FCC Dressing Things Up? For some time now, we have thought that the FCC would approve the merger with just the Republican vote (i.e., 3 of the 5 votes). However, we also have thought the FCC wanted to gain some sort of support from the Democrats, in order to improve the overall appearance of the decision. Recently, its been reported that a minority congressman on the House Telecommunications Subcommittee praised the company’s pledge to lease eight channels to minority owners. SIRI has stated in the past that they didn’t want to give up any spectrum; however, leasing the spectrum would be a reasonable compromise. In addition, eight channels compared to the total offering of potentially 300 channels is immaterial. Timing of the FCC’s decision continues to be a mystery; though, we would prefer to see the end sooner versus later.
SIRI and XMSR Extended the Merger Termination Date to Rolling Two Week Increments: SIRI and XMSR really don’t have any leverage over the FCC; however, if they made the extension for 90 days, it could indicate to the FCC that they have yet another 90 days to make a decision. Therefore, we don’t read too much into the rolling two weeks.
SIRI To Report At the Last Possible Moment: Similar to the fourth quarter, we expect that both SIRI and XMSR will report first quarter results on the last day possible (May 12, 2008). We believe that SIRI has two scripts prepared, one with FCC approval, and the other still waiting for FCC approval. We made some minor adjustments to our model, and have increased our EBITDA loss for the first quarter from ($48) million to ($54) million. For the year, we increased the EBITDA loss from ($270) million to($287) million. The primary reason for the changes were attributable to increasing our churn estimates, and lowering overall subscriber forecast. We now estimate that SIRI will end the year with 9.992 million subscribers, versus our previous estimate of 10.1 million. Investors should be aware that our estimates could continue to be optimistic if OEM production continues to decline, despite the increase in penetration.
Position - Long Sirius, Long XM