Take the money and run


Warning of a potential 30% or so downside, Wienkes has added Sirius to Goldman Sachs’ “Conviction Sell List.” He says the close at 3.15 following DOJ approval of the merger with XM is likely the near-term high.

Indeed, the stock fell the next day. According to the analyst, the stock price doesn’t take into account several possible pitfalls, including the coming refinancing of XM’s debt, the time it will take to realize merger synergies and potential conditions that the FCC might impose in approving the merger. “Excluding the merger proposal, we do not believe the fundamentals, subscriber growth curves, or risk-adjusted estimates support the absolute valuation of Sirius or even relative to XM. We think the retail satellite radio market remains moribund and the increasing gross OEM subscriber additions are masking the rising underlying churn – note that the company now has about 1 million ‘car lot’ subs,” Wienkes told clients. He adds that positive EBITDA for the merged company is likely at least two years away.

RBR/TVBR observation: In his summary, Wienkes even warns of “de facto FCC rejection of the deal.” That was what you read here on Monday – that Sirius CEO Mel Karmazin could lose by winning (3/24/08 RBR #58) if, after winning at the DOJ, the FCC gives its approval as well, but with restrictions so onerous that XM and Sirius will refuse to go to closing and head to court instead. Indeed, having the DOJ give its green light has caused some consumer groups to step up their calls for the FCC to require a significant set-aside of spectrum for other operators as a condition of permitting the monopoly to go forward.