Stifel analyst Kit Spring issued a note today in which he highlighted the arbitrage spread between Sirius and XM as being "abnormally high". The arbitrage spread is represented by the delta between the price of Sirius and XM in relation to the 4.6 shares of Sirius that will be received for each share of XM upon a merger approval. With Sirius closing at $2.00 today, the implied price for XM is $9.20. XM closed at $7.57. Thus, if the merger were approved today, a share of XM would bring a premium of $1.63 over current prices. For this reason Spring has a BUY on XMSR.

The Stifel note also issued some highlights on the sector. Among the highlights are:

  • lowering 2009 subscriber estimates by 3% and 2013 by 5%
  • lowering OEM expectations despite deeper penetration
  • Retail off, but not as bad as expected
  • BUY on SIRI with a $3.50 Price Target (down from $4.00)
  • BUY on XMSR with a $16 Price Target


  • Gross OEM additions of 696k, down from 707k
  • Net OEM additions of 234k, down from 401k
  • Gross retail additions of 254k, up from 237k
  • Net retail additions of 8k, up from (6k)
  • Ending subscribers of 8.88MM, down from 9.04MM
  • Revenue of $284.8MM down from $287.3MM
  • EBITDA of ($43MM) and Adjusted EBITDA (EBITDA before non cash comp) of ($21MM) versus ($41MM) and($18MM) respectively
  • Loss of $0.06 per share, unchanged.


  • Gross OEM additions of 762k, down from 958k
  • Net OEM additions of 266k, down from 477k
  • Gross retail additions of 210k, down from 226k
  • Net retail additions of (38k), down from (21k)
  • Ending subscribers of 9.56MM, down from 9.79MM
  • Revenue of $322MM versus $326MM
  • EBITDA of ($45MM) and Adjusted EBITDA (EBITDA before non cash comp) of ($31MM) versus ($60MM) and($45MM) respectively
  • Loss of $0.40 per share, up from a loss of $0.45

Spring has made some sensible adjustments to his model, and seems to be cautious in his approach, using conservative assumptions and data points. With a lack of any real guidance from the companies, and uncertainty in the merger concession outcome a conservative and cautious approach is likely warranted.

Position - Long Sirius, XM.