Citigroup analyst Eileen Furukawa issued a highly bullish report this morning, who feels that SIRI and XMSR stocks are currently undervalued and that the pending XM-Sirius merger has a “high 60%” probability of success.
Furukawa says that a “detailed, item line analysis” of a merger of XM Satellite Radio Holdings Inc. with Sirius Satellite Radio Inc., found that the satellite radio marriage could create “present value” cost savings of $7 billion - with 10%-20% savings across customer service, programming, R&D, sales and marketing and other areas.
In addition, although she does not specifically factor this into her model, Furukawa says that the combination “could drive higher ad revenues given larger combined reach.” Furukawa's model also doesn't include savings on capital expenditure from shifting to a single system, which she feels could be worth $750 million long term.
Furukawa says that XM's stock price at last night’s close reflects a 24% chance that the pending merger of the two companies succeed, a view which she says is too bearish. The Citigroup analyst thinks the deal has a “high 60%” probability of success.
She gives the stock a “probability weighted” target price to $19.50, up from her previous target of $15, but she also says that the company could be worth $23 a share if all of the synergies she sees are realized.
Both XMSR and SIRI were up significantly this morning on the news.
[via Barrons]
Thanks Gary!
Will someone, ANYONE, try to explain how the merged company is going to save 20% on customer service? The assertion is beyond stupid.
They are going to require just as many call centers as they do now, uncombined. Further, they're going to add a ridiculously complex ala carte system. If anything, customer service is likely to INCREASE by 20%.
There are no further efficiencies to be had in customer service as a result of the merger. You cannot just arbitrarily reduce expenses by 20% and call it "synergies". You have to know, with some reasonable certainty, what those efficiencies step from.
The capex remark is just as ignorant.
Based on her remarks, one can only conclude the analysis is incompetent. This is so typical, unfortunately. REAL analysis means looking and understanding the numbers, where they come from, and what the probable savings might be. It does NOT mean arbitrarily lopping off a percentage for no apparent reason.
"Will someone, ANYONE, try to explain how the merged company is going to save 20% on customer service? The assertion is beyond stupid."
You don't understand business do you?
Is the new company going to be called Sirius, or XM or something different? Anyone? Bueller? Bueller?
Stackpointer, wheres your breakdown that would indicate the Citigroup analyst is incompetant and has no expertise--Im sure the analyst did alot more homework then guessing
cost savings where? a single platform ? but but but.. both XM and sirius must maintain what they have now or replace existing receivers.
Customer service? LOL
but they will only need MSNBC CNN and many others ... however .. being that these shows or channels will now be available to double the people on one network, ya think they will not want to re negotiate?
It will save the OEMS that have not commited one way or the other in receiver inventory.
but thats not XM, sirius or a combined company.
R&D savings? 25 mill a year or so.
Programming costs.. cut 1/2 the music chanels... but wait.. they cant do that can they? or will Hair nation and the bone yard be combined and simply be called something different on each network?
Plain and simple, what may or could be a synergiy, can andf will be gobbled up by so many unforseen obsticals that the merger will not IOM produce a leaner meaner anything.
But thats fine.. ANALists please keep commenting and moving the PPS up.
>> Further, they're going to add a ridiculously complex ala carte system. If anything, customer service is likely to INCREASE by 20%.
Had you done your RESEARCH, you would know that the a la carte options are only selectable online.
But I guess StackPointer is allowed to just arbitrarily spew out percentages with no basis.
>>> Had you done your RESEARCH, you would know that the a la carte options are only selectable online.
Please don't confuse reading news articles online with "research". They are two different things.
While it is true the ala carte setup will be done online, the call centers are going to have to deal with answering questions about it, fixing billing problems (my bill shows I'm being billed for channel 23 and I didn't ask for it and don't want it -- I want my 25 cents back).
Not to mention the cost of essentially scrapping the entire CRM systems for both companies, developing and debugging the new software, training people to use it, and the cost of pissing off customers who have to deal with the system.
Anyone who believes the combined company's customer service costs are going down simply don't understand the nature of what has to be done.
...and why will the merger allow a 10 to 20 percent cut in marketing expenses? Won't the new merged XM/Sirius still have to market itself aggressively against it's competitors in TerrRad, MP3, Internet Rdaio, et al, that Mel keeps telling me is their real competition?
Analysts keep commenting on this "$7 billion" in synergies.
Where is the line item listing of these savings? I want to see them.
After ten years of being a combined entity, yea, maybe there are a few hundred millions in savings, but 7 billion? I'd like to see where they get this number from, not just a "because Mel said so" comment.
The $7 billion is the total net present value of synergies over time, not annual savings. Without doing any real research, I'd say the number is closer to the lowest analyst estimate of $3 billion, since it's going to take a long time to fully integrate the systems.
I love how there's about 20 Harvard MBA's covering the merger who each calculate a minimum of $3 billion in synergies, yet we have several resident geniuses here that can confidently proclaim that these synergies do not exist. You might want to send a copy of your research and an application to Citigroup, I hear they pay well.
StackPointer: THE CAPEX ANGLE IS THE MOST IMPORTANT ONE OF ALL! I don't see how you think the major saving she predicts are stupid since they won't need to have as many satellite anymore! It's long-term because the satellites that are up there are pretty much staying up there, but in the future, they'll only have to replace them with half as many. It's the biggest expense they have man!
StackPointer vrs rjr: Stack is completely right about the customer service, maybe it's rjr who doesn't know anything... First, their service now isn't very good, remember the 8 hour waits to activate radios two Christmases ago? Notice how we all get to talk to four confused clerks before they basically give us free radios for no reason? Now they're going to make the offerings more complex with a la carte? They might save some money with management, but the call centers are going to need better training and twice as much staff. Costs will rise! (Also, I don't care if a la carte will be designed for online maintenance, they'll get thousands of calls anyways)
NorCalMurph: The merged company will be Sirius, and only SIRI stock will be traded. They might keep XM on the shelf just because people like choice. (Any of you who live in Canada might notice there's a Best Buy next to every Future Shop, even though they're the same company, that's because people, on average, check 2-3 places when making a big electronics purchase, which almost guarruntees Best Buy or Future Shop the sale)
RoadRunner: The 15%-20% savings in advertising won't be based on reducing advertising, it will be based on bringing everything together under one account. The more ad space you buy, the cheaper the rate.
It seems to me we have 20 Harvard MBA's and none of them can agree on anything. One says the merger is dead. Another says it's 100% approved. One says there are no savings. Another says it will save 12 trillion dollars. An MBA doesn't make you smart, it means you did enought to get through school and in many cases you just bought a degree. As long as they are going to operate both companies as Mel has said time and time again, there will just not be billions in cost savings. And even if that were true, it doesn't make a monoploy in the public interest.
JB: "The $7 billion is the total net present value of synergies over time, not annual savings. Without doing any real research, I'd say the number is closer to the lowest analyst estimate of $3 billion, since it's going to take a long time to fully integrate the systems."
Thanks for the info JB. While I was aware of the timeframe (10+years likely), I was unaware that they went as low as $3 Billion.
JB: "I love how there's about 20 Harvard MBA's covering the merger who each calculate a minimum of $3 billion in synergies, yet we have several resident geniuses here that can confidently proclaim that these synergies do not exist."
The problem is that these same analysts also thought that XM/SIRI would have 60+ million subscribers between the two by 2010. We all know how that will end up now don't we?
I take anything these "analysts" have to say with a grain of salt. Just because they have a MBA doesn't automatically mean they know what they're talking about!
To comment on the original post, what does an analyst covering the cost of a merger have to do with the chance of the merger getting approved? They are unrelated. The DOJ doesn't care about the cost, just what it means to consumers.
The difference between Bookies and Analists is that an Analist will not loose their shirt when the set the odds wrong.
60% chance? WTF ? based on what?
>>>>>>>> StackPointer: THE CAPEX ANGLE IS THE MOST IMPORTANT ONE OF ALL! I don't see how you think the major saving she predicts are stupid since they won't need to have as many satellite anymore! It's long-term because the satellites that are up there are pretty much staying up there, but in the future, they'll only have to replace them with half as many. It's the biggest expense they have man!
XM just replaced its satellites and have about 14 years left on them. Sirius plans to replace its satellites over the next 2 years, and will have about 15 years on them. So, any savings in capex is at least 10-12 years out, and when discounted (for the TVM as well as for the possibility sats won't be used at all that many years out), the savings is either trivial in amount or nonexistent.
>>>> Another says it's 100% approved.
I may have missed it, but I know of NOBODY who thinks its 100% either way. While I'm very much opposed to the merger, even I admit that it is probably a 50/50 shot.
>>> Thanks for the info JB. While I was aware of the timeframe (10+years likely), I was unaware that they went as low as $3 Billion.
This is Jacoby's number, and he is probably the best analyst in the bunch at this point. But, by necessity, there is a lot of guesswork involved, and all these guys are looking at it from the POV of, "Okay, how many percent can we cut off of this expense if there is a merger". I'm not sure ANY of them are considering the massive costs of merging two disparate systems, trashing the CRM systems and buying/developing new ones (to accommodate ala carte), consolidating the infrastructure, or for that matter, even the 10s of millions (if not 100s) that will have been spent in merger-related costs before the deal could even be closed (all Time zero expenditures, versus savings 5-10-15 years down the road -- not only requiring heavy discounting, but casting doubt on whether such savings will ever occur at all). If one looks at Mancini's early estimate, it is LOL funny. She actually forecasted a net savings in marketing costs for '07. Shit.
>>> But I guess StackPointer is allowed to just arbitrarily spew out percentages with no basis.
If I have done this, please tell me where, as I do not think I have, other than to quote someone else's with which I disagreed.
I'd have to say that without the details of the analysis, this doesn't pass the smell test. Why is everyone gaga over $3-7 bil in savings over 10 years when most of that is likely at the tail end of the period. Both companies have already started purchases for new satellites and the existing infrastructure is workable, with maintenance, for 5-10 years. They will both continue to release new models of radios that are exclusive to one platform for at least a year or two and still have to do the R&D on the dual sub models that will have to be produced until the day of full spectrum utilization on a single platform (and then deal with trying to sell consumers this new radio or cut them off). The new, complex programming packages will undoubtably require more, but not necessarily double, staff and definitely more training upfront to deal with the foreseen problems correctly. Billing will still be seperate entities for a year or two while systems are switched over. The only easily visible savings for the combined company up front is the HQ staffs and they, as the decision makers, usually don't like getting fired.
Since XM has a playlist 3x the size of SIRI, it is easy to belive that it will be cut to produce savings and appease RIAA. It is already widely known that the sports packages won't be a part of the new programing packages; to try and broadcast a sport on both platforms opens the contracts to renegotiations in which the sports leagues hold the upper hand. SATRAD needs them more than the Leagues need SATRAD. It is also not a stretch to believe that Mel K is eventually planning to go away from the commercial free music model. He will not have a broadcast competitor that doesn't generate revenue via advertising in one way or another. It is what he knows how to do.
If the two companies wish to merge, fine. But the combined company should not be allowed to hold both licenses.
....I've heard both ways, that the merger is for sure and also the merger is as dead as the pope (the old pope not the new one)... and I'm so tired of wondering which it will be, a new fantastic radio company or the old better radio company (XM)... so the wait continues without any clue as to when it might be decided, by the end of this week, or the end of the month, or by the end of the year...
wow...i feel stupid.
what did you guys just say?
"Since XM has a playlist 3x the size of SIRI, "
SHOW PROOF OF THIS CRAZY STATEMENT
you might want to just stick to the party line "XM has a deeper palylist", there is never any proof to back that up.
>>>>SHOW PROOF OF THIS CRAZY STATEMENT
He can't, it does not exist.
The size of the playlist depends on the channel. Deeptracks undoubtedly has the longest playlist in all of radio. 20-on-20, that's a different thing. What we do know is that XM's music library is several times the size of SIRI's.
Wow, you agree with Stackpointer on some stuff, but disagree on others, and he'll still fight you back on the dissenting points!
PFREAK: I have to point out that the MBA is a pretty grounded "working" degree where you're meant to have had a couple years in the field before you get it. I know some dumb business schools let people in right out of an undergrad, but outside of those schools (and they don't make the top 100 schools btw), and also, these analysts would be Finance majors, which is the best discipline, in my opinion... so no, they're not dumb-dumbs who "bought" their degrees.
Truth is, every business has STUPID forecasts these days. 60 million subscribers?!? It's all lies to pump up stock.
Every school has people that graduated at the bottom of their class or didn't deserve to be there in the first place. If you want to talk about Harvard, my last roommate was attending for an MBA while living with me. She went to class maybe twice a week and spent the majority of her time sleeping or watching TV. She was very good at memorizing things the night before a test and got her degree. She's a great friend but I wouldn't believe a word out of her mouth when it comes to anything pertaining to her degree, she didn't earn it, she bought it. Education has become just a business. I'm shocked at the intelligence of people that are attending my college & grad school everytime I visit. It bums me out because it devalues my degrees. These people have no business being admitted but if you can pay for it, you'll get in. I'm not saying they're all idiots but with the exception of the people who graduate in the top of their class they are average to below average.