Question On XM/Sirius Merger Deal

[Beetwasher]

It's reported that when they merge, "XM shareholders would get 4.6 shares of Sirius stock for each share of XM they own."

http://money.cnn.com/2007/02/19/news/companies/xm_sirius/index.htm

Would this make XM the Aquirer and Sirius the target?

Also, in general, for the short term, the target's stock rises and the Aquirer's stock falls, correct? So one would, in theory, exptect Sirius's stock to go up (if in fact they are the target) and XM to fall?

I think I'll just hold on to my Sirius stock and perhaps buy some XM as well.

Thanks!

[OlderButWiser]

1. Just want to post

so i can see what the answer will be.

[mcscajun]

2. In fact, Sirius is acquiring XM; so in general, reverse your price expectations.

More specifically, any stock price movement would greatly depend on Wall Street's impression of the outcome and benefits of the merger.

In more mundane matters, according to Sirius (and probable combined company) CEO Karmazin has stated that the XM and Sirius brands will be continued as distinct brands/services for the next 15 years. There will be combined services offered in addition to the distinct brands.

What the new company will be named hasn't been decided yet.

[Beetwasher]

3. Ahh, So They Are Aquiring XM By Giving The XM Shareholders Stock In Sirius

Got it. That makes sense.

I knew about the distinct brands/service issue, but I couldn't find it clearly stated anywhere who was acquiring whom.

I think I'll just hold on to my Sirius stock and perhaps buy some XM as well.

Thanks!

[A HERETIC I AM]

4. At this point, there is probably not much of an advantage to owning both issues.

Since the news is out and the market has reacted to this news and bid BOTH companies up, it is unlikely there would be significant movement up or down by either stock relative to the other between now and the stock switch.

[Beetwasher]

5. Actually They Went Up Initially, But Both Were Down Today

And they still need FCC approval, which I think would cause some movement. But I'm thinking longer term anyway. When the merger goes through, if I own XM stock, I'll get even more Sirius stock to boot.

[A HERETIC I AM]

6. I considered using the word "spike" but didn't

because both shares, as you indicated, did spike up in price.

There is a $71.40 difference between the value of 100 shares of XM and 460 shares of Sirius at the end of todays trading, in the favor of SIRI stock ($1,350.00 vs $1421.40). The offer has basically priced XM at $14.21 today. The price that Sirius closes at tomorrow will still set the price for XM. Whatever 4.6 X the price of Sirius is, that's what one share of XM is worth as long as the deal is on the table. Is seems to me that we will see that $71.40 difference diminish over the next few days.

[Beetwasher]

7. Ok, So Today

They ended at 3.02 (SIRI) and 12.89 (XM). That means XM would be valued at 13.89. Now, you say the price that Sirius closed at today will set the price for XM, correct? But it will change daily, correct? Depending on how the stock closes on a daily basis?

Forgive me if these seem like stupid questions, I've never dealt w/ owning a stock involved in a merger before and I'm trying to figure out the effect. I've had SIRI for a couple of years now (about 1,000 shares) and trying to understand and learn about the process, I appreciate your help. Right now SIRI's price is just about the same as when I initially bought it.

Also, when the merger goes through and XM shareholders get their SIRI stock, I'm assuming that would be in ADDITION to their XM stock, correct? Or would the SIRI stock replace their XM stock?

Also, can you explain why you think buying some XM as well would be a bad move for me, or why you wouldn't recommend it? If the stock is at 12.89 and I buy it at that price, but is valued at 13.89 when the merger goes through (for example, using today's pricing) wouldn't that be a good deal? Especially since I'd be getting SIRI stock to boot?

Also, don't you think that when the FCC approves the merger there might be another spike for both companies?

[A HERETIC I AM]

8. I admit you have asked some questions that are way above my pay grade.

I say that because some of the questions you ask are better suited for a Stock Analyst and I freely admit I am by no means an analyst.

The primary reason I suggested that Sirius will determine the worth of XM is because the XM shares WILL BE REPLACED by Sirius shares.

They ended at 3.02 (SIRI) and 12.89 (XM). That means XM would be valued at 13.89. Now, you say the price that Sirius closed at today will set the price for XM, correct? But it will change daily, correct? Depending on how the stock closes on a daily basis?

Yes, yes and yes. I find it interesting that the spread widened to almost exactly $100 from yesterdays $70. However, I am not going to stick my neck out by making any predictions as to which way either stock will go!

Also, when the merger goes through and XM shareholders get their SIRI stock, I'm assuming that would be in ADDITION to their XM stock, correct? Or would the SIRI stock replace their XM stock?

As I mentioned above, The XM Shares will be replaced, unless I am reading the article wrong. If I'm not reading it wrong, XM will no longer exist as a symbol on the stock exchange on the day of the closing. They may keep the "SIRI" ticker or they may, as the article infers, change the name of the company and therefore the ticker symbol may change. They will announce that beforehand either way. If you have 1000 shares if SIRI, you'll still have them (or a new ticker). If you have 1000 shares of XM, you'll have 4600 shares of SIRI show up on your account and XM will disappear.

Also, can you explain why you think buying some XM as well would be a bad move for me, or why you wouldn't recommend it? If the stock is at 12.89 and I buy it at that price, but is valued at 13.89 when the merger goes through (for example, using today's pricing) wouldn't that be a good deal? Especially since I'd be getting SIRI stock to boot?

I have to mention I did not state I thought buying XM would be a bad move, I said I just didn't see much of an upside as they will be replaced anyway - but you make an excellent point. If the value of 100 shares of XM is less than 460 shares of Sirius on the day of the close, yes, you'll make out well. This is really a question for an analyst because to get a true sense of which way one or the other will go before the merger is completed, a much deeper study (than I am professionally prepared to do) of the two would be necessary. Even then, it might be difficult to know for certain.

Also, don't you think that when the FCC approves the merger there might be another spike for both companies?

Again, a question for an analyst. Looking at both stocks over the last 5 years, it appears to me that both have been bid down substantially from their highs back in 2005. Here is the 5 year chart for XM and here is the same for Sirius. The charts tell me that the market has sort of lost interest in either as both are having difficulty turning a profit and they have had several years to try and succeed. It appears that FCC approval has been priced in. You might see a little jump, but I just don't see it as being a dramatic one.

Both stocks were further down today but XM was down a larger percentage (4.52% to 2.27%). If that spread widens further - if XM is bid down further than Sirius on a percentage basis, a holder of XM shares would stand to make out better for the reason I mentioned above. It is my feeling that gap will narrow between now and the close, but I freely admit I could be completely wrong and as such, I make no recommendation to buy, sell or hold either issue.

We've all noticed in past mergers where the company doing the actual taking over will publicly state they will give $X for the shares of the target. If the target company is trading below that price, the stock instantly rises to or near that offer price. This was not the case with the XM/SIRI deal. There was no offer for cash either - simply that the 4.6 for one transaction would occur.

I've had SIRI for a couple of years now (about 1,000 shares) (snip) Right now SIRI's price is just about the same as when I initially bought it.

Your Sirius shares are worth roughly what you paid for them. My feeling is that the market will value the combined companies slightly higher, but not substantially until some real progress toward profitability is seen. The reason I say that is, as I mentioned above, this particular media enterprise (Sat. Radio) has been trading lower for over two years running. Investors will want to see some real potential for profits before moving back in droves.