lower targetSirius and XM Satellite Merger Set for Approval; RBC Lowers Price Targets
by: FP Trading Desk posted on: July 06, 2008
Analysts at RBC Capital Markets lowered their target prices on XM Satellite (XMSR) and Sirius Satellite (SIRI) radio companies ahead of expected FCCapproval of their proposed merger.
In a note to clients last week, the team of analysts wrote that certain FCC-imposed conditions to the merger could offset some of the expected $4-billion in synergies, with proposed price freezes and a la carte programming likely to have the most impact.
However, the biggest hurdle - or the issue most likely to delay the merger - is debt covenants at XM on about $1-billion in notes, which will likely have to be repurchased in the form of consents at a cost of up to $100-million.
In addition, the two companies have about $700-million in combined convertible debt due next year that the analysts say will likely have to be refinanced at a higher rate, thus squeezing the combined company's cash position.
RBC downgrades its target price on XM to C$11 from C$13, and does the same for Sirius to C$2.50 from C$3.00.