XM Satellite Radio (NASDAQ: XMSR) closed at $8.44 Thursday.

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

MAJOR PAPERS:

• The Wall Street Journal reported that after years of rapid grows, many hedge funds are shutting their doors or merging with others, as expansion has dramatically slowed. As a result, the industry is being dominated mostly by big firms, such as Och-Ziff Capital Management Group LLC (NYSE: OZM), D.E. Shaw & Co., and Paulson and Co.
• Shares of Ctrip.com International Ltd (NASDAQ: CTRP), China's major Internet travel booker with about 58% of the country's online travel business, have dropped about 30% in the last six weeks alone creating a possible buying opportunity, according to the Wall Street Journal's "Heard in Asia". Travel in China is expected to grow solidly in the long-term and Ctrip.com said it expects revenue to grow 30% for the three months ending June 30 from a year earlier.
• In a move that could potentially usher in a new phase in the credit crunch, the Financial Times reported that The Goldman Sachs Group Inc (NYSE: GS) is said to be close to finalizing a plan to restructure a $7B investment vehicle formerly run by Cheyne Capital, a London-based hedge fund.

OTHER PAPERS:

• The Washington Post reported the proposed merger between XM Satellite Radio Holdings Inc (NASDAQ: XMSR) and Sirius Satellite Radio Inc (NASDAQ: SIRI) was under fire yesterday by senior members of the Congressional Black Caucus, who said the deal does not provide enough opportunities for minority-owned programming.

TheStreet.com's Jim Cramer says the longer Sirius and XM Satellite have to wait for the FCC to rule, the worse things get for these stocks.

Worried.

Worried about the Sirius (NASDAQ: SIRI) (Cramer's Take) -XM Satellite (NASDAQ: XMSR) (Cramer's Take) deal.

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.

What's to work on?

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.

MOST NOTEWORTHY: EastGroup Properties, Take-Two and Calumet Specialty were today's noteworthy downgrades:

• After EastGroup (NYSE:EGP) reported slightly higher-than-expected Q1 FFO per share, Cantor Fitzgerald downgraded the stock to Hold from Buy on valuation. However, the firm still believes that the company's business model and dividend fundamentals are well-positioned.
  
• Citigroup downgraded Take-Two (NASDAQ:TTWO) to Hold from Buy citing balanced risk/reward as the firm does not expect an aggressive competing bid process.
  
• Raymond James downgraded Calumet (NASDAQ:CLMT) to Underperform from Market Perform following the company's reduction in distribution to 45c unit from 63c.

OTHER DOWNGRADES:

• Citigroup lowered XM Satellite (NASDAQ:XMSR) to Hold from Buy.
  
• Oppenheimer cut First Midwest Bancorp (NASDAQ:FMBI) to Perform from Outperform.
  
• Bernstein downgraded DirecTV (NASDAQ:DTV) to Market Perform from Outperform.

Once again shares of Sirius Satellite Radio Inc. (NASDAQ: SIRI) and XM Satellite Radio Holdings Inc. (NASDAQ: XMSR) are on the move. On Wednesday, shares of the two satellite radio companies got squashed due to concern over the merger review. XM shares tumbled 9.9%, or $1.45, to $13.21, while Sirius dropped 6.0%, or 21 cents, to $3.29.

Interestingly, lawmakers, who sometimes hold hearings about large mergers but have no direct say, voiced their opinion on the merger, with the U.S. House of Representatives antitrust task force expressing concern about the Justice Department review of Sirius's proposed purchase of rival XM.

Reuters has obtained a copy of a letter that Democrat John Conyers, chairman of the task force, and Republican Steve Chabot, wrote to Attorney General Michael Mukasey, dated Dec. 11, in which they are conveying their dismay over reports the Justice Department may be trying to rush through the merger and that "Assistant Attorney General for Antitrust Thomas O. Barnett may intend to grant the merger over the objections of department staff."

With last week's BusinessWeek article expecting a verdict on the proposed merger between Sirius Satellite (NASDAQ: SIRI) and XM Satellite (NASDAQ: XMSR) soon, I feel that it's imperative that the regulators let the deal happen. Without a deal, both companies will continue to incur heavy losses, and the future of satellite radio will be in jeopardy. It's ironic that the antitrust lot are worried about a monopoly, but without a merger, the entire industry could be finished.

With plenty of competition coming from traditional radio, internet radio, and Apple (NASDAQ: AAPL)'s iPods, the government's worry over lack of competition is unfounded. Rather, the money saved by the merger in new customer acquisition will help keep the companies solvent. Doug McIntyre had a nice analysis of the deal a few weeks back, and he feels that with both stocks' recent rise, Wall Street is telling us that 1) they think the merger is going to go through, and 2) it would be mutually beneficial if it does.

If we can get a quick resolution to this, after months and months of foot-dragging by regulators, and the resolution is in favor of the merger, then this will be a defining movement for the satellite radio industry as it moves ahead and becomes a true media force to be reckoned with.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer has no position in any stock mentioned as of 12/03/07.

With nothing better to do the day before Thanksgiving, The Wall Street Journal has decided to revisit the odds of whether a merger between the two satellite radio companies, XM Satellite (NASDAQ: XMSR) and Sirius (NASDAQ: SIRI) have improved. The paper writes "in the past few months, investors have shown increasing confidence of the deal's winning approval from the Federal Communications Commission and the Justice Department."

There may be a few good reasons that the chances of a deal have improved, but they are hardly compelling.

Some of the car companies have come out in favor of the merger. That would only make sense. Marketing two platforms is probably a bit of a mess. A fair number of congressmen who want to look good say the merger is bad for consumers, and will drive up prices. There isn't any hard evidence of that, but it is a nice talking point.

There is probably an economic reason for a merger. Both companies have over a billion dollars in debt. Paying that down would probably be easier with the savings from combining the companies.

But Wall Street may look at the share prices of XM and Sirius and say that they are the best sign that a merger looks good. The stocks are both up 25% in the last three months. Maybe investors are gambling the deal is looking better.

There is another reason for the stocks to be up: Both companies are still growing and adding subscribers. The firms may still be losing money, but they are moving closer to break-even.

That has nothing to do with a merger.

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

The FCC is not done examining the merger of XM Satellite Radio (NASDAQ: XMSR) and Sirius Satellite Radio (NASDAQ: SIRI). It sent detailed questionnaires yesterday seeking new information from both companies.

According to The Wall Street Journal the inquiries could "provide an indication of areas where the FCC could ask for concessions as part of any satellite-radio merger approval."

When the merger was first announced, shares of both companies rose. And each time there is a positive indication that the government may approve the merger, they jump again. But the rallies are short-lived. Third quarter earnings from the two satellite radio companies were modest.

The merger also may not look as good financially as it did at first. The companies do not have entirely compatible technologies, which means some redundant costs may stay in place for years. The sat radio stars, like Howard Stern, may want more money if their programs run on both services. Each firm has contracts with the major car manufacturers; it is not clear how those will be sorted out.

The unspoken driver of the merger is the one billion dollar plus debt that both companies carry. A consolidation that would cut costs might help the companies with their crushing debt service. But the longer the merger is delayed and the more time management has to spend on the FCC matters, the weaker the two companies become. Earnings for the third quarter showed that neither is a booming business right now.

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

Sirius Satellite Radio Inc. (NASDAQ: SIRI) and XM Satellite Radio Holdings Inc. (NASDAQ: XMSR) surged yesterday after Citigroup analyst Eileen Furukawa estimated that the proposed multibillion-dollar merger has a greater than 60% chance to succeed. The analyst believes regulators have shifted in favor of the merger and that the market, currently giving the deal only a 24% chance of passing regulatory muster, is underestimating the chances and is too bearish. Furukawa has upped XM's price target to $19.50 from $15.

Still, if the merger goes through, Furukawa estimates it could produce up to $7.2 billion in cost savings and further, this estimate might be conservative as it does not include capex savings. In addition, the merged company could drive higher ad revenues and move away from the subscriber-based model into the ad-revenue one that seems to be where many believe the money is, especially as the early subscriber growth both companies experienced has cooled.

If the merger indeed succeeds and the cost savings are achieved, there may be a chance the combined company could rediscover the earlier growth it once witnessed. As Dana Cimilluca of the WSJ Deal Journal notes, this cost savings is bigger than XM's market cap of $4.67 billion, so no wonder both companies and their shareholders pushed the merger forward so passionately. They know what might happen if the merger doesn't go through.

One last comment on this. Contrary to Furukawa, Jonathan Jacoby of Banc of America Securities thinks that the stocks' recent prices actually imply that investors think there is an 85% chance of the merger succeeding. I'm not sure what could explain such a big difference in the two opinions, but I do know what mine has been all along and why I'm in trouble with many satellite fans. I do believe these to be too risky for their potential upside and I'm staying out.

Tuesday, SIRI shares closed up 3.77% to $3.5799 and XMSR shares up 6.87% to $15.24. Today, XM shares are cooling a bit, down over 1% to $15.08, while Sirius shares are continuing to climb, up more than 3% to $3.69 by midday.

XM Satellite Radio Holdings Inc. (NASDAQ: XMSR) announced the date scheduled to vote on Sirius Satellite Radio Inc.'s (NASDAQ: SIRI) proposed multibillion-dollar acquisition would be November 13 at 3:00 p.m. in Washington, DC. The deal values XM at $15.92 a share, based on Sirius' closing price Wednesday, when the vote date was released,. The deal is structured to give existing XM and Sirius shareholders roughly 50-50 ownership in the combined company, with 4.6 Sirius shares for each XM share.

Of course, the deal still requires approvals from the Federal Communications Commission and Justice Department, and it is those votes that really matter, because I doubt the shareholders of XM or Sirius would vote against the deal. The boards of both companies have already approved it.

We all remember the road these two have taken since they announced the proposed merger in February. Analysts keep changing the odds of approval, especially considering that when the FCC granted their licenses in 1997, it did so on the condition that they never combine to create a potential satellite radio monopoly. Yet, Sirius' CEO Mel Karmazin keeps claiming that conditions in the market have changed -- that satellite radio now competes with high-definition radio, internet-based radio, mobile digital music gadgets such as the iPod as well as terrestrial radio.

Michael Copps, a member of the FCC, said that the tests for some upcoming mergers should be set higher. Two deals over which he showed special concern were the Sirius (NASDAQ: SIRI) merger with XM (NASDAQ: XMSR) and the News Corp (NYSE: NWS) purchase of Dow Jones (NYSE: DJ).

Mr Copps' worries about Dow Jones are simple enough. He is troubled that Mr. Murdoch will have such a large concentration of media in New York

He shows even more interest in the Sirius plan. The Wall Street Journal writes that "as one of five FCC commissioners, Mr. Copps will cast a vote on whether the Sirius-XM merger and Tribune sale should be allowed to proceed." Copps may want the satellite radio companies to give more guarantees on prices charged to consumers.

XM and Sirius stocks have both moved off lows as it appeared that approval for their merger looks more certain. The stocks are sill severely depressed. Copps comments may help push them down again.

While the satellite radio company merger may face more opposition than was anticipated recently, the firms still have a compelling argument about how competitive the marketplace is. They continue to lose money and, without some change in their structures, their debt loads could sink them. Perhaps someone will point that out to Copps.

Douglas A. McIntyre is a partner at 24/7 Wall St.

Sirius Satellite Radio (NASDAQ: SIRI) and XM Satellite Radio Holdings (NASDAQ: XMSR) have finished the day down 4.29% and 5.53% respectively following a downgrade to Neutral from Buy at UBS. UBS analyst Lucas Binder lowered his FY 2008 loss per share estimates for Sirius to $0.42 from a $0.40 but upped the price target to $3.90 from $3.75. XM fared a little better as Binder increased his estimate of loss per share to $1.61 from $1.68 and moved his price target to $16 from $15. The analyst believes the current stock prices reflect most of the fundamental upside.

Well, some investors may look at today's declines as an opportunity to get into the stocks. I wouldn't. It may be worth nothing that while both radio companies are valued nearly always similarly, many favor Sirius, saying it can only come out a winner regardless of how the dice rolls on the proposed merger of the two. Should the merger go through, all the better; if it doesn't, then Sirius is the faster growing and the better positioned one of the two.

XM Satellite Radio Holdings Inc. (NASDAQ: XMSR) has announced quarterly earnings this morning with revenue increasing 22% year over year to $277 million. XM's 2007 second quarter net loss narrowed to $176 million, or 57 cents a share, a 23% improvement compared to the 2006 second quarter net loss of $229 million, or 87 cents, in the year-ago period. Excluding charges, the company's earnings per share was 45 cents per share.

Analysts polled by Thomson Financial expected the company to lose 44 cents a share on revenues of $275 million.

XM also ended the quarter with more than 8.25 million subscribers compared to 6.90 million subscribers in the prior year period. In the recent quarter XM added 338,000 net subscribers. While new retail subscribers actually fell 74% to 43,000, customers added through the installation of radios by carmakers rose 28% to 295,000. Churn rate remained roughly the same, but conversion rate increased.

The stock was indicating down 3.6% in premarket trading.

I'll be liveblogging the earnings call at 10:00 a.m. this morning, in hopes to hear more about the merger with competitor Sirius Satellite Radio (NASDAQ: SIRI) and what the company plans to do in case this doesn't pan out.

What do Whole Foods Market Inc. (NASDAQ: WFMI) and Sirius Satellite Radio Inc. (NASDAQ: SIRI) have in common? What do Wild Oats Markets Inc. (NASDAQ: OATS), Borders Group Inc. (NYSE: BGP) and Google Inc. (NASDAQ: GOOG) have in common? I'll give you a hint -- they all want to merge with some other company in their field. But the mergers are all very different.

Give me a break, one cannot compare the proposed merger between Whole Foods and Wild Oats to that of Sirius and XM Satellite Holdings Inc. (NASDAQ: XMSR). I know many Sirius and XM investors will lash out at me for this, but come on people! Sarah Gilbert made a very good case yesterday why the merger of the trendy food stores doesn't have antitrust issues: "There is a plentiful supply of organic and natural produce and other products available at both small local cooperatives and farmer's markets and large supermarket chains," least of all Wal-Mart Stores Inc. (NYSE: WMT).

Sirius and XM? Now that's a different story altogether. They are the only two satellite radio companies. There are no smaller competitors, or large competitors with a small market share. That's all there is -- Sirius and XM. Sure, the argument that the market includes iPods, internet and HD radios is very creative and may even work, but let's call it what it is -- a desperate attempt by the two companies to get their merger approved. They've even hired a lobbying firm.