Stifel analyst Kit Spring has issued an upgrade on Sirius after the DOJ approved the merger deal between Sirius and XM.


Merger Synergies Underappreciated; Reiterate Buy and $4Target

DOJ approved merger; stocks under-reacted: Despite an estimated $4.8B of synergies, XMSR and SIRI shares had a muted impact in our view indicating either skepticism on the size/timing of the synergies or a view that DOJ approval means there is too much competition. The 5.1% merger spread indicates a healthy degree of skepticism of FCC approval.

FCC approval likely to be next catalyst:
We expect the FCC to approve the merger within weeks with impositions that do not materially impact our $4.8B of merger synergies, which already include the concessions of a lacarte pricing, adult tiers, and price freezes. Unlikely surprise impositions that would reduce our synergies would be 1) required inclusions of HDradios (request by iBiquity) - too onerous as XMSR/SIRI does not make radios, and 2) spectrum giveback - unlikely as it would reduce benefits to consumers and adjacent WCS spectrum is still not being used.

Model will improve dramatically post the merger: 1) increases likilihood that satellite radio ends up standard versus our 75% assumption, 2) nearly every expense line item should see dramatic reductions (after initial costs),3) improved prospects of profitability increase likilihood that $4.5B of combined NOLs can be used.

Tyler Savery Position - Long Sirius, Long XM