AT&T Isn't Going to Buy Sirius XM

AT&T is hungry, but it's not going to eat Sirius XM.

May 15, 2014 at 3:00PM

Everyone likes to play Cupid, and a Wall Street Playbook article on Seeking Alpha this morning argues that AT&T (NYSE:T) should pursue a match with Sirius XM Radio (NASDAQ:SIRI). Instead of spending $50 billion on widely reported plans to snap up DIRECTV (NASDAQ:DTV), why not spend just $25 billion for Sirius XM?

It's not going to happen. 

For starters, unless Sirius XM's shares plunge sharply in the coming weeks and months it's going to take a lot more than $25 billion to take it over. It's not enough of a premium. Wall Street Playbook offers up Sirius XM's $19.4 billion market cap as a springboard for a buyout at $25 billion, but that ignores the satellite radio provider's substantial net debt position. Sirius XM's enterprise value is actually north of $22 billion, and that's before accounting for any of the additional shares and vested options that would kick in under a buyout scenario. Even if none of that existed, why would Sirius XM investors accept a 10% buyout premium to its $22.4 billion in enterprise value?

I know that the past few months have been disappointing for Sirius shareholders. The stock has shed 23% in value since peaking in October, and it's trading 8% lower year to date. However, is a 10% buyout premium really going to be enough for a stock that has been one of the market's biggest winners over the past five years? Sirius XM shares climbed more than 20% last year after soaring nearly 60% the year before. The company closed out its latest quarter with a record 25.8 million subscribers.

Liberty Media (NASDAQ:LMCA) holds a controlling stake in Sirius XM. It calls the shots here. Liberty Chairman John Malone loves to trade assets, but he's not getting out of bed for anything short of $30 billion in this scenario. As long as the fundamentals don't start to crumble there's no pressing need to hand over the country's satellite radio monopoly for a pittance of a premium.

However, it's not just a matter of Sirius XM being too good for AT&T's theoretical $25 billion parachute. The deal also wouldn't make financial or strategic sense for AT&T. It may be gearing up to pay twice as much for the leading satellite television provider, but DIRECTV generated $5.2 billion in operating profit last year on $31.8 billion in revenue. Sirius XM clocked in with an operating profit of $1 billion on $3.8 billion in revenue. Paying twice as much for a company generating eight times the revenue and five times the operating profit isn't outlandish. Even if we turn to free cash flow, where Sirius XM's sweet scalable model really begins to narrow the valuation gap, DIRECTV is still generating nearly three times as much as Sirius.

Where would Sirius XM exactly fit in with AT&T? It may be a provider of premium satellite-based services, just like DIRECTV, but there's a big difference between video at home and audio in the car (and it's not just about pricing). DIRECTV offers to bundle its pay TV platform with Internet and telephone services, a market AT&T would love to corner.

It's also fair to say that antitrust regulators -- the same ones that AT&T and Sirius XM have already run into problems with in earlier corporate combinations -- would be very dubious here. At the very least it would cost Sirius XM shareholders' time, and that's not worth the hassle for a 10% premium.

Sirius XM doesn't need a buyout partner. It's better off on its own. AT&T doesn't need Sirius XM. It's better off with DIRECTV. A combination would be a lose-lose situation for both camps. Let them both win by remaining independent.

Your cable company is scared, but you can get rich
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 




Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends DirecTV. The Motley Fool owns shares of Liberty Media and Sirius XM Radio. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers