XMSR and Sirius (NASDAQ: SIRI) announced a merger of equals in February of 2007. XMSR shareholders will receive 4.6 SIRI shares for each XMSR share.
Jonathan Adelstein, an FCC commissioner, said he'd vote to approve a merger between XMSR and SIRI if they cap prices and increase public interest and minority programming. The FCC Chairman Kevin Martin recommended approval of the SIRI-XMSR merger this spring. Adelstein would be the third of five commissioners to support the deal; a majority is needed.
XMSR August option implied volatility of 133 is above its 26-week average of 84 according to Track Data, suggesting larger price movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
XMSR and Sirius Satellite (NASDAQ: SIRI) announced a merger of equals in February of 2007. XMSR shareholders will receive 4.6 SIRI shares for each XMSR share.
The FCC Chairman Kevin Martin recommended approval of the SIRI-XMSR merger. The FCC Commissioners could rule on the proposed merger soon.
XMSR July option implied volatility of 114 is above its 26-week average of 79 according to Track Data, suggesting larger price movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
XM Satellite Radio (NASDAQ: XMSR) - The FCC Chairman Kevin Martin recommended approval of the Sirius Satellite (NASDAQ: SIRI)-XMSR merger. The FCC Commissioners could rule on the proposed merger soon.
XMSR and SIRI announced a merger of equals in February of 2007. XMSR shareholders will receive 4.6 SIRI shares for each XMSR share.
XMSR July option implied volatility of 76 is near its 26-week average according to Track Data, suggesting non-directional price movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Too many parties have too much to lose to let this one go through without a fight, TheStreet.com's Jim Cramer says.
No, it is not over. If there is one thing we have learned about Sirius (NASDAQ: SIRI) (Cramer's Take)-XM (NASDAQ: XMSR) (Cramer's Take), it is that at every step of the way, people have to try to block it or at least hold it up to the point that someone goes out of business. This is a deal, now much longer in passing than Exxon and Mobil, that still has congressional meddling even right now, still has rearguard activists who might fight the merger on the commission itself even though the FCC's staff has said yes.
Lots of people are confusing the issue of the merger benefits with the merger itself. The benefits will be helpful down the road on both the revenue and the costs, and the caps won't mean that much. What matters, plain and simple, is refinancing. Both companies are always in danger of running out of money.
However, if you know that three years hence -- after the frozen period during which service fees cannot be increased -- the two companies can begin to offer extreme cable pricing, you can go hat in hand to the Street with a good bond deal that people will no longer feel could default.
This is a deal that should have happened when the Justice Department gave the nod to it. That non-political judgment should have been enough to make it work. But it's been stalled on the FCC's desk since then, and the comments I have heard are incredibly contradictory about when it might be approved, and if it will be approved at all.
FCC chairman Kevin Martin first indicated to people that he didn't even know if the deal would come up any time soon. Then yesterday he said it might come up this month, and they are working hard on it.
Short sellers are guessing that the merger between Sirius (NASDAQ: SIRI) and XM Satellite (NASDAQ: XMSR) will be approved in the fairly near future. Short interest in Sirius fell 29.1 million shares between May 15 and May 30 to 141.3 million.
There are several reasons for the change in sentiment. One is simply the passage of time. The FCC has had the matter for over a year-and-a-half and FCC chairman Kevin Martin recently said a decision would come soon.
Another reason the merger may get green-lighted is that Sirius is probably willing to give up some of the merged company's spectrum for the government to auction off in the hope of creating yet another satellite radio company.
The final and best reason that the FCC may decide to let the marriage move through is that satellite radio is not the big consumer electronics boom that it was a few years ago. There are too many programming competitors in the market. Sirius and XM cannot even make money. There is, in fact, the issue of whether they can survive at all.
Wall Street may believe that whether there is a deal to merge with XM Satellite (NASDAQ: XMSR) or not, Sirius (NASDAQ: SIRI) shares have fallen as far as they are going to. How much more bad news can the company take? Recently, Goldman Sachs said a combined company would need to raise as much as $1 billion for operating costs. Each of the companies already has long-term debt of well over $1 billion.
Subscription growth at Sirius is slowing and it still does not make an operating profit. The market has been concerned that HD radio, new consumer electronics devices, and mult-media phones all mean new competition for the satellite radio operator.
But the short interest in Sirius dropped 18 million shares to 170.4 million, the second largest drop for any company on Nasdaq during the May 15 period.
Trading just above $2.50, SIRI shares may have found a permanent bottom. Its market cap is under $4 billion, a fraction of what it was two years ago. Is there anything left to move it down a lot more? Probably not.
MOST NOTEWORTHY: IberiaBank, Dynamic Materials and Barr Pharmaceuticals were today's noteworthy upgrades:
Keefe Bruyette upgraded shares of IberiaBank (NASDAQ: IBKC) to Market Perform from Underperform after the company announced that Pulaski has assumed the insured deposits of ANB Financial of Bentonville, Arkansas.
KeyBanc upgraded Dynamic Materials (NASDAQ: BOOM) to Buy from Hold citing stability in base business, valuation, and the added benefit associated with a European competitor being acquired.
Cowen raised Barr Pharma (NYSE: BRL) to Outperform from Neutral citing the recent pullback.
OTHER UPGRADES:
Goldman added McGraw-Hill (NASDAQ: MHP) to its Conviction Buy List.
RBC Capital raised RadioShack (NYSE: RSH) to Sector Perform from Underperform.
Sirius Satellite (NASDAQ: SIRI) was upgraded at Merrill Lynch to Neutral from Sell.
XM Satellite Radio (NASDAQ: XMSR) shares are up after the company reported that its subscriber base grew 9.33 million subscribers in March, up from 7.9 million a year earlier. This comes despite the company reporting a first-quarter loss of $129.3 million, or 42 cents per share, this morning, worse than analysts' predictions of a 39 cents per-share loss. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on XMSR.
After hitting a one-year high of $16.44 in December, the stock hit a one-year low of $9.62 in January. XMSR opened this morning at $11.90. So far today the stock has hit a low of $11.70 and a high of $12.41. As of 12:30, XMSR is trading at $12.40, up $0.60 (5.1%). The chart for XMSR looks bearish and improving slightly, while S&P gives the stock a bearish 2 Stars (out of 5) Sell rating.
For a bullish hedged play on this stock, I would consider a July bull-put credit spread below the $10 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in just ten weeks as long as XMSR is above $10 at July expiration. XM would have to fall by more than 18% before we would start to lose money.
XMSR hasn't been below $10 by more than a few cents in the past year and has shown support around $11.60 recently. This trade could be risky if something about the XM-Sirius (NASDAQ: SIRI) deal goes wrong, but even if that happens, that position could be protected by support the stock might find just above $10, where it has bounced quite a few times over the past year.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in XMSR or SIRI.
Analysts surveyed by Thomson Financial expect Sirius Satellite Radio (NASDAQ: SIRI) and XM Satellite Radio Holdings (NASDAQ: XMSR) to report narrower losses for the first quarter. Both companies are scheduled to report Monday morning.
Sirius is expected to report a loss of 7 cents per share, compared to the same period in 2007 when it lost 10 cents per share, and the previous quarter when it lost 11 cents per share. The company has provided positive surprises in the past few quarters.
New York-based Sirius boasts 8.3 million subscribers and is the radio home of Howard Stern and Martha Stewart. In 2007 the company agreed to acquire rival XM Satellite Radio. In the past year, Sirius's revenues were $922 million. Its EPS growth forecast for the year is 19.47%, which is much better than its industry average. The consensus recommendation of analysts remains to buy Sirius.
The stock has fallen 3.87% in the past year and closed Friday at $2.73.
MOST NOTEWORTHY: Abercrombie & Fitch, ENGlobal Corp and Wausau Paper were today's noteworthy initiations:
Morgan Keegan initiated Abercrombie & Fitch (NYSE:ANF) with a Market Perform citing lack of comp momentum and the outlook for consumer spending.
Jesup & Lamont expects ENGlobal's (NASDAQ:ENG) earnings momentum to remain in place due to sustained demand for energy products. Shares were initiated with a Buy rating and $13.25 target.
Soleil expects Wausau Paper (NASDAQ:WPP) shares to be driven by its value-added market focus, product innovation and improved mix. Shares were assumed with a Buy rating.
OTHER INITIATIONS:
Citigroup assumed coverage of XM Satellite Radio (NASDAQ:XMSR) with a Hold rating from Buy, and a $12.25 target from $17. The firm also assumed Sirius Satellite (NASDAQ:SIRI) with a Buy rating and $8 target from $4.25.
Morgan Stanley initiated MarkWest Energy (NYSE:MWE) with an Overweight rating.
Soleil initiated Potash (NYSE:POT) with a Hold rating.
XM Satellite Radio (NASDAQ: XMSR) closed at $8.44 Thursday. 
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Sirius is expected to report a loss of 7 cents per share, compared to the same period in 2007 when it lost 10 cents per share, and the previous quarter when it lost 11 cents per share. The company has provided .gif){kind=logo}
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