Satellite Radio Experiences A Financial Gravity Event

One + One is not 2

XM Satellite Radio (Nasdaq: XMSR) and SIRIUS Satellite Radio (Nasdaq: SIRI) announced that they have entered into a definitive agreement, under which the companies will be combined in a tax-free, all-stock merger of equals with a combined enterprise value of approximately $13 billion, which includes net debt of approximately $1.6.

Following several years of hyper competition no one has been able to deliver a knock out punch. They now have determined that their best bet is to join forces and fight off all the other entertainment and communication options that are available. Much in the way of synergies is being promised. Wall Street Analysts have predicted savings in the billions.

FCC must rule on this one. Some think it will take a year before an approval comes down. Competing forces will complain and lobby for a disallowing. In the meantime the company will go through the motions of being synergistic efficient yet strategically distracted.

The merger does one very important thing. It eliminates management excuses about competition and scale. Combined you have approximately 14 million paying customers.

Watch for big write downs of impaired assets in the very immediate future. Then we need profits and positive cash flow almost immediately if not sooner, because the market is done waiting for this one.

People listen to music because they like the tune not because it beams in from outer space. Sports fans, news junkies and other genre’s are the same.

Management has not provided any forecast or guidance to speak of and is attempting to sell the move based on hype and spin. The number crunchers certainly have tumbled the numbers. My guesstimate is a continued spiral downwards as financial gravity pulls satellite radio back down to reality.