Shares in XM Satellite (XMSR) should be trading in tandem with shares in Sirius (SIRI). They are, after all, planning to merge.

For much of the year, the two stocks have traded in lock-step. But, over the last three months, that has changed. During that period, XM’s stock is up 35% and SIRI is up a bit over 20%.

There could be several explanations for the change, but the most likely one is that XM is considered the stronger company if the merger does not work. At XM, revenue for the 2007 third quarter increased approximately 20 percent year over year to $287 million compared to $240 million in the 2006 third quarter. XM ended the 2007 third quarter with approximately 8.57 million subscribers compared to approximately 7.19 million subscribers in the prior year period..

XM still had an operating loss of $113 million, but its larger base of subscribers and revenue make it the more viable standalone company.

The merger is still up in the air. But, in the event that the FCC blocks it, the market seems to believe that XM is more less likely to go out of business.

Douglas A. McIntyre

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