XM-Sirius Merger No Panacea for Satellite Radio
The Justice Department’s blessing of the proposed merger of XM Satellite Radio (NASDAQ: XMSR) and Sirius (NASDAQ: SIRI) makes the deal all but done, pending the FCC’s expected acquiescence.
Still, not everyone thinks the deal will improve the fortunes of the two struggling businesses, as indicated by the fact that they are trading at below the combined value of the proposed deal. According to 24/7 Wall Street, Goldman Sachs has added Sirius to its Conviction Sell List.
Goldman Sachs sees 30% downside to its $2.25 price target.
The Street.com’s Jim Cramer, however, puts a $5 target on Sirius, assuming the merger goes through.
As ContentMatters points out “In addition to terrestrial radio they will be competing with HD radio, iPods and all the emerging web technologies like internet radio (e.g. last fm), social networks such as MySpace and the music blogs. ”
CreditSights sees the deal as positive for both companies’ debt, but mainly in the longer term.
Contrary to the expectations of the Justice Department, we think these two operators will be able to operate as a quasi monopoly of subscription radio, which will eventually make this combination a much stronger credit.
CreditSights says that while there are shorter term cost savings in such areas as sales and marketing, it will take time to rationalize two currently incompatible networks.
“If we are right that the merger will lead to significant cost reductions, the bonds of both companies could be good value. We recommend an overweight on both credits. This is a long-range view; time will be needed to realize synergies. Also, until credit demand improves, investors may have little appetite for such a speculative credit.”
One risk to the positive credit thesis would be that the FCC conditions might impose undue costs on the combine, CreditSights says.
Naturally, terrestrial radio businesses such as ClearChannel would like to see some conditions imposed. As engadget reports, “The broadcast giant has dropped a whole big list of requests on the FCC to impose as conditions upon XM / Sirius for a merger, not the least of which is asking for broadcast decency rules be applied to satellite radio.”
Logo image courtesy of the Street.com
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