XM Satellite Radio (NASDAQ:XMSR) shares are reeling from a Goldman Sachs downgraded this morning.  Goldman Sachs downgraded its Neutral rating down to a new SELL rating with a 26% downside risk to the $11.50 price target of Goldman Sachs. 

What is interesting is that Goldman’s note says it could be wrong in the near-term if the Department of justice approves its merger with Sirius Satellite Radio (NASDAQ:SIRI).  But its call is somewhat firm.  The downgrade is said to be based upon valuation and contemplates possible short-term price swings whether the DOJ approves or blocks the merger.

"Deal or no deal, we think the current valuation incorporates a view too close to optimal…."

Take a look at the Goldman Sachs risk/reward matrix: 

• It sees $3.00 upside if the deal is approved;
• It sees $8.00 downside if the merger fails to win approval.

Shares of Sirius and XM had been climbing as others have signaled their belief that the deal may be closer rather than farther away.  XM shares are down almost 5% pre-market at $15.05, and even Sirius shares are down over 3.5% at $3.61.

Jon C. Ogg
December 4, 2007

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