For those who have not noticed, Sirius (SIRI) and XM Satellite (XMSR) are trading near multi-year lows. That is odd since many investors believe that the FCC will approve their merger. The agency may ask for a big concession which would be that the combined company would give up some spectrum so that a new satellite radio start-up could enter the market.
But, the time that the merger could help the two companies is almost certainly in the past. Each still has well over $1 billion in long-term debt. Neither makes any money. Subscriber growth is slowing. Goldman Sachs recently observed that a combined operation might have to raise as much as $1 billion to fund operations. That is a lot of dilution. It is possible that two companies, rated as "junk", may not be able to raise the funds at all, particularly in the current debt environment.
Many of the dynamics which made the two companies attractive investment several years ago are gone. According to The Wall Street Journal "The nation’s only two satellite services are growing slower than previously while the broader economy is in a slowdown. Fewer people have been buying new cars, which is where the companies derive the bulk of new subscribers."
At their current burn rates, both companies may start to run low on cash later this year, and debt service payments are already onerous. If subscriber growth nose dives, the trouble at the companies could accelerate.
Saving satellite radio may be beyond the province of a merger.
Douglas A. McIntyre
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