Sirius: Merger or Chapter 11
Posted
Dec 04 2007, 11:39 PM
by
allant
Rating:
This post was written by Douglas McIntyre of the blog 24/7 Wall Street:
Goldman Sachs hit Sirius and XM Satellite with serious downgrades today. It knocked down shares of both companies by 5%.
What analysts don't want to say is that the future of satellite radio in the U.S. could already be coming to an end. A merger between the two companies may be the only alternative they have to stay in business. Each company has well over a billion dollars in debt. Sirius had negative operating income last quarter of $106 million on $242 million in revenue. XM was in the red to the tune of $108 million on sales of $278 million. And XM shows only $275 million in cash on its balance sheet.
Sirius had 7.7 million subscribers at the end of last quarter and XM had 8.6 million, but those numbers no longer double year-over-year. That may be because other forms of entertainment have taken over in the car. When satellite radio was launched a decade ago the rear-seat entertainment device was not all the rage. The Apple iPod did not exist.
The market seems to forget that the shares of these two companies trade as if they were going out of business. In early 2000, Sirius traded close to $70. It is now lucky to see $3.50 on a good day.
Sirius and XM are lobbying the FCC to approve their merger on the basis that there is plenty of new digital competition and that a combined company would not be a monopoly. In the strictest sense, it is one, of course. The government licenses the rights to be in the business and, in a merger, there would be only one company with those rights.
But, the FCC may have a more practical reason to give a merger the green light. With limited cash on their balance sheet, tight credit markets, slowing subcriber growth, and huge quarterly losses, both companies could disappear.
To read the rest of the Top Stocks blog, click here.
