With industry on the ropes, XM Satellite deal with Sirius might not matter
Posted by: in Latest NewsFiled under: Analyst reports, Forecasts, Deals, XM Satellite Radio (XMSR), Sirius Satellite Radio (SIRI)
The satellite radio business could be in such sad shape that a merger between Sirius (NASDAQ: SIRI) and XM Satellite (NASDAQ: XMSR) may not do either much good. Neither has ever made a net profit. Their subscription growth rates are slowing. And, each has well over $1 billion in long-term debt.
Goldman Sachs recently said the combined company might need to raise $500 million to $1 billion to fund operations.
The editors at The Wall Street Journal figured this all out, perhaps a bit later than most. According to the paper, “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.”
While the data might be obvious, the conclusions might not be. Companies with over $1 billion in debt and huge operating losses often do not make it, at least not in their current form. If the FCC does not approve the deal or puts a number of restrictions on it, one or both of the companies may have to seek the protection of Chapter 11. Large debt service against no profits can do that.
Douglas A. McIntyre is an editor at 247wallst.com and author of the Ten Stocks Under $10 letter.
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