Merger Steps In 2008
The merger between Sirius and XM satellite Radio did not get approved in 2007 as the companies and many investors had hoped. We are now in 2008, and the question that is likely at the forefront of the minds of sector watchers is when will a decision come. While that question is important, there is perhaps a more critical issue to consider. Now that the theoretical timeline of merger approval has come and gone, how will the street react with the new year.
Throughout the last couple of months there have been a few false starts on the merger, and anticipation ran high. Now that the letdown has happened, will the street embrace these equities, or will investors move their dollars to other equity pastures? The immediate tone will be known in the first part of January, as both Sirius and XM are close to breaking key support levels. If they break these levels, is a stock freefall possible, or will they bounce and hover as the street awaits a decision?
Many analysts believe that there is above a 50% chance of approval, but the waiting game has become more expensive as time passes, and other investments are delivering pay days that simply are not happening in SDARS. The patience of the SDARS investor is indeed being tested.
The merger was announced 315 days ago.
The FCC Comment Period has come and passed.
The FCC time clock has run past the 180 day goal.
The DOJ has had their second request information since September 5th.
Sirius and XM complied with the FCC Information request
The Shareholders approved the merger
All of these developments have happened, and as each step has progressed, investors were trying to position themselves for a merger decision. Some believe the merger will pass, and others that it will fail. To date, the uncertainty has favored those betting against the merger, but throughout the process, there have been some substantial pushes that have shown there is a lot of investment money sitting on the sidelines waiting for the decision, a hint, and a clue as to which way the merger wind is blowing.
CES is coming, fourth quarter conference calls and subscriber announcements are due, but the street is waiting on one thing. The merger news. It seems that nothing will move this stock in a substantial way until the merger decision is reached.
Most still believe that the DOJ will take the lead in the merger, with the FCC announcing their decision afterwards. The merger agreement between Sirius and XM expires in a couple of months. Whether or not these companies extend the agreement is yet to be determined, but one could reasonably assume that having come this far, they will see the issue through. Especially considering the results of the respective shareholder votes.
Speculation for regulatory decisions seems to have run its course, and now it is simply a waiting game. The regulators have their information. They have the public comments, they have the perspective of proponents and opponents on the merger, and they have had plenty of time to review all of the information. All eyes now rest on the DOJ and FCC. How long the respective agencies take to come to a decision is anyone’s guess at this point. The question is how the equities will be impacted as we wait.
Position – Long Sirius, Long XM
Around this time last year I wanted to put some extra money to work in the market. There were two stocks that I decided to choose from. Either I would take a safer route and put my money in Citigroup, then trading at 55$ with about a 4% dividend, stable growth, and seemingly reasonably priced. Or Sirius… losing millions of dollars per day, in an unproven market with hundreds of variables.
Well, I chose Siri and almost from day one I was sorry. The mofo tanked for the next 6 months. Missed earnings left and right, what a crap fest. And Citi, being the large bank stock, didn’t really fall at all, plus it would have given me 4% dividend.
Looking back over the last year though, I can safely say that staying out of Citi was the best move I made. In the last 6 months Citi has fallen 50%, and Sirius has actually gone up a bit.
The point is, in life, things change really fast, and in the stock market, even the “safe” stocks can sink, especially so in uncertain times.
My investment in Sirius might turn out to be worthless, or the stock might jump to 5$ on good merger news. Who knows?
At the risk of sounding like an intellectual, which I sadly am not, I will quote Abraham Lincoln.
“It is said an Eastern monarch once charged his wise men to invent him a sentence, to be ever in view, and which should be true and appropriate in all times and situations. They presented him the words: “And this, too, shall pass away.” How much it expresses! How chastening in the hour of pride! How consoling in the depths of affliction!”
So, merger questions? troubles with the DOJ and FCC? weak retail numbers? stock tanking?
This too shall pass.