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Sirius forecasts merger savings, investors flee

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Sirius Satellite Radio, Inc. (NASDAQ: SIRI) laid out what it thought its financials would look like next year after a merger with XM Satellite Radio Holdings (NASDAQ: XMSR). The market wasn't impressed.

Sirius had an odd way of expressing how it would save money next year. According to the company, "Total synergies, net of the costs to achieve such synergies, for the combined company are expected to be approximately $400 million in 2009." The firm also said it expected positive free cash flow.

All of that good news sent Sirius down almost 9% to $1.91. Volume was heavy at over 35 million shares, so the selling turned into a stampede.

Sirius forgot to mention the one number that Wall St. really wants to see which is what it thinks the revenue for the merger company will hit for 2009. Without that, it is impossible to determine whether any of the cash flow numbers are believable.


Investor concerns about Sirius are now more on the sales side. The idea that the marriage will allow for expense cuts is already assumed because both companies are in the same business.

The top line is critical. Observers fear that subscription growth is dropping quickly and that potential customers are turned to other devices including multi-media handsets and Apple Inc. (NASDAQ:AAPL) iPods. The single largest source of business for the company is new car buyers. For now, they are in short supply.

Sirius can't make its case if it can't say what its revenue prediction is, and defend it with assumptions. It look like the company is afraid to do that.

Douglas A. McIntyre is an editor at 247wallst.com.

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Last updated: November 12, 2009: 02:28 PM

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