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Saturday, September 16, 2006

Weekend Edition: M&A Nation: Sirius and XM


One would hope that the speculation about Sirius and XM merging would go away. But, it won't. The New York Times reported yesterday that the analysts over at Credit Suisse are still fooling around with the idea.

The idea still has merit, on paper. Both companies are losing hundreds of millions of dollars. XM will be lucky to exit the year with 8 million subscribers. Sirius will celebrate the new year with a little over 6 million, by its account. The stocks in both of the companies have been pounded on the continued loses and the potential that they may have to raise more capital, adding to the huge debt loads or diluting the current shareholder bases.

In the last quarter, XM generated only $227 million in revenue. It stock is down from its 52-week high of $36.91 to $13.68. Sirius had revenue in the last quarter of $150 million. Its stock is down from its annual high of $7.98 to $4.03.

The market's concern about the two companies is not simply that they lose money. Satellite radio had little competition in 2000, when the Sirius stock was above $80. But new wireless products like the Microsoft Zune will be able to work on WiFi signals, and as these get distributed around cities, the need for a satellite feed may become less acute. Apple has also set up its iPod so that it can play through a car stereo. And, traditional radio broadcasters are introducing digital radio with better fidelity.

The world is no longer just XM and Sirius battling for share.

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