Satellite Radio In "Orbit "Over Merger Murmurs
Talk of a merger between XM Satellite Radio and Sirius Satellite Radio has been churning for months now. 2006 was far from a stellar year for either satellite network, although both stocks are up 20% YTD – mostly on continued rumors of a merger. But is a merger between the two rivals in the cards? David Bank of RBC Capital Markets joined the “Squawk on the Street” team at the NYSE to talk about it.
Bank says there is a strong possibility of an XM/Sirius merger within the next 12-18 months, with XM likely being the acquirer. He believes the competitive environment in that timeframe should allow for favorable M&A activity (the Department of Justice would have to sign off on the merger).
Two players in this market can survive without merging, Bank says, but the upside for both is limited. “You have two companies that do virtually the same thing” with redundant operations, redundant programming and redundant networks. Bank calculates there’s about $5 billion worth of synergies if the two companies combined, with plenty of value to be created for shareholders (neither company currently turns a profit).
If a merger or buyout were not to occur, Bank would give XM the long-term competitive advantage. That is because XM has 60% of the market share for OEMs (original equipment manufacturers) and automakers compared to Sirius with 40%. He also says digital radio is not a real player yet as it still has a couple of years left of development – and even then it likely won’t have the level of programming as XM or Sirius.