No Fire Sale for Sirius, XM

Is the XM (Nasdaq: XMSR  ) and Sirius (Nasdaq: SIRI  ) merger just a prelude to a larger deal?

Financial blogger Douglas A. McIntyre suggests that even the combined company may have to be sold, given the cutthroat competitive landscape and the duo's more than $2 billion in collective debt. He suggests that terrestrial heavyweight Clear Channel (NYSE: CCU  ) , blue-chip telcos like Verizon (NYSE: VZ  ) , cable providers like Comcast (Nasdaq: CMCSA  ) , and even satellite-television behemoth DirecTV (NYSE: DTV  ) may want in on the buyout party. But what's the rush? The FCC hasn't even cleared the deal, after last month's Justice Department approval.

More importantly, why is everyone assuming that the blood-red income statements XM and Sirius are putting out today will continue once the merger is finalized?

I'm not naive. Even I doubt the $7.2 billion in annualized post-merger savings that Citi analyst Eileen Furukawa proposed several months ago. Sirius CEO Mel Karmazin has conceded that financing an XM deal -- if and when it gets a second regulatory thumbs-up -- won't be a cakewalk.

In his blog, McIntyre points out even more potential snags. He discusses the companies' slowing growth, and the lack of interoperability between the XM and Sirius receivers. He also rightfully points out that the shares are trading for less than they did before the deal was originally announced.

So? Aren't these just additional reasons for Sirius-XM to see things through? A merger isn't supposed to accelerate growth, but why does everyone dismiss what Sirius-XM will look like in a few years, when the interoperability problem is licked and the company has twice the bandwidth to offer audio and improved video content? Subscriber growth itself is unlikely to accelerate, but the additional features and services available will create opportunities to make more off its subscribers.

Why would Sirius-XM dream of punching out before then? Even in the near term, dramatic reductions in support, servicing, and anti-rival marketing will materially benefit the combined company's operating income.

Sirius-XM is not as poor as the market thinks it is, even if broadcasting fat cats have already started drooling over its impending union's dowry. 


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