In a follow up to the note issued earlier this week, Citigroup analyst Eileen Furukawa suggests in a report issued this morning that there is a 69% chance that the XM-Sirius merger gets approved by either the FCC and/or the DOJ by December 5th.
Furukawa estimates the current Sirius Satellite Radio Inc. stock price reflects a 41% chance of approval, "which is too bearish" while the XM Satellite Radio Holdings Inc. price reflects an even lower 29% chance of approval.
"Based on our view of a 69% probability that the deal is approved around December 5, and the associated stock moves based on the ruling, we conclude that XMSR calls are cheap, " write the Citigroup analyst.
While the analyst maintains a "Buy" position on both SIRI and XMSR, Furukawa feels that buying XMSR January '08 calls can be an attractive alternative strategy for investors looking to gain exposure to the XMSR/SIRI M&A event.
If the deal is rejected, Furukawa anticipates that XMSR will trade down 26% while SIRI will trade down 25% from the intraday price used.
"However, if the deal is accepted, to which we attribute a 69% probability, then we sense that both stocks will move higher in response," adding that the the speed of the move depends on how much investors believe the speed and magnitude of synergies can be achieved.
What sort of odds does this Eileen Furukawa put on the Devils game?
Who the hell invests on "Odds" ... you bet on a horse with "Odds"
uhhh....the entire investing world revolves around "odds". everything is a risk/reward proposition, and people invest according to the "odds" that their investment will pan out.
I also invented 69
Again, what does a stock analyst have anything to do with knowing what the odds of a merger will be?
The merger is decided by FCC/DOJ. It has NOTHING to do with the stock or whether the company(ies) can/cannot produce a profit.
how the hell did she figure out it's 69%?
did she just magically figure that number out? Why couldn't it have been 65% or 70%?
Why 69%?
What a weird number to choose, I wonder how she figured that one out.
how the hell did she figure out it's 69%?
did she just magically figure that number out? Why couldn't it have been 65% or 70%?
Why 69%?
What a weird number to choose, I wonder how she figured that one out.
Use of the figure 69% suggests more precision than is possible in such an estimate -- something that should be avoided in financial presentations. Use of estimates is fine, in fact, essential -- but it is important to never allow the estimate to imply more accuracy or precision than the figures represent.
If you cannot determine with 1 percentage point accuracy what the chances of the merger are, you should not use 69%, you should round to 70%. And if you cannot determine with 10 percentage point accuracy, it is probably best to just call it "more likely than not" or even 50/50.
It is absurd to release a figure claiming a 69% probability. But no more absurd than the claim of 7 Billion or more in net discounted synergies.