Lowdown in Lodi
August 8th, 2006, 02:32 PM
GRANT ROBERTSON
Globe and Mail Update
It's been more than a month since Mel Karmazin poured some badly needed fuel
on the flickering flame known as satellite radio stocks by single-handedly
prompting takeover speculation within the industry. But the weeks since then
have not been kind to investors.
The outspoken chief executive officer of New York-based Sirius Satellite
Radio Inc. sparked a rally in June when he suggested a takeover involving XM
Satellite Radio Holdings Inc., his Washington-based rival, is possible.
“Would I like to buy them? Sure,” Mr. Karmazin told an industry conference
in New York as investors began piling into the shares that afternoon.
Such talk is nothing new for satellite radio, an industry that began five
years ago in the United States and launched last year in Canada. A fresh
rumour of an XM-Sirius alliance crops up at least once a year, creating a
stir in the markets when it percolates.
Related to this article
The Globe and Mail
XM shares gained 6.8 per cent in the hours after Mr. Karmazin spoke, while
Sirius surged 5.1 per cent on three times the company's average trading
volume.
The mini-euphoria appears to have spread north of the border as well, where
shares in Canadian Satellite Radio Holdings Inc., which operates the XM
franchise in Canada, rose 5 per cent in the following days.
But the rally was short-lived and the shares have fallen steadily since
then.
Aside from the temporary buzz created by such speculation, market watchers
say there are few reasons for investors to get excited about the industry
amid continuing losses.
“As an investor, the stocks have been slammed because the market wants them
to have continually accelerating growth,” said Steve Mather, an analyst with
Sanders Morris Harris in Los Angeles who tracks the industry. “And in the
real world you don't get continually accelerating growth.”
The U.S. operations of Sirius and XM both reported deep second-quarter
losses of $238-million (U.S.) and $230-million, respectively, in the past
two weeks as the companies spend aggressively in a heated battle for
subscribers.
In Canada, where Canadian Satellite Radio launched in late 2005, the company
remains in startup mode. However, losses associated with getting it off the
ground hit $20.4-million (Canadian) in the recent quarter and investors have
responded. The company's shares slipped to $8.50 last week, their lowest
point since December's initial public offering at $16 a share on the Toronto
Stock Exchange. (Sirius Canada is not publicly traded).
Despite rosy projections for the future, the satellite radio companies are
having a tough time convincing shareholders. Sirius increased its subscriber
projections for 2006 to 6.3 million last week, up slightly from previous
expectations of 6.2 million customers, but the news had little effect.
Sirius shares fell Monday to $3.81 (U.S.) on the Nasdaq Stock Market, less
than half their 52-week high in December.
If investors are looking for relief, Mr. Mather suggests they could be
waiting a while. Merger speculation may be the only thing lifting the
industry these days, but it's an unlikely saviour since a deal would face
too many hurdles, he said.
“It's ridiculous, absurd, preposterous, illogical — pick your adjective,”
Mr. Mather said. “They would never be allowed to go from two companies to
one.”
Beyond the obvious monopoly concerns from U.S. regulators, Mr. Mather
believes the biggest problem is justifying the price tag of a takeover.
“You've got to pay $6- or 7-billion if you want Sirius, and there isn't
$7-billion worth of synergy there,” he said. “And if you want XM, you're
going to pay $4-billion. And there isn't $4-billion worth of synergy there
either.”
That hasn't stopped investors from warming up to the idea, or at least
trading on the immediate jump the speculation creates.
“It was huge,” Mr. Mather said of the rally Mr. Karmazin's comments created.
“But it was silly.”
Globe and Mail Update
It's been more than a month since Mel Karmazin poured some badly needed fuel
on the flickering flame known as satellite radio stocks by single-handedly
prompting takeover speculation within the industry. But the weeks since then
have not been kind to investors.
The outspoken chief executive officer of New York-based Sirius Satellite
Radio Inc. sparked a rally in June when he suggested a takeover involving XM
Satellite Radio Holdings Inc., his Washington-based rival, is possible.
“Would I like to buy them? Sure,” Mr. Karmazin told an industry conference
in New York as investors began piling into the shares that afternoon.
Such talk is nothing new for satellite radio, an industry that began five
years ago in the United States and launched last year in Canada. A fresh
rumour of an XM-Sirius alliance crops up at least once a year, creating a
stir in the markets when it percolates.
Related to this article
The Globe and Mail
XM shares gained 6.8 per cent in the hours after Mr. Karmazin spoke, while
Sirius surged 5.1 per cent on three times the company's average trading
volume.
The mini-euphoria appears to have spread north of the border as well, where
shares in Canadian Satellite Radio Holdings Inc., which operates the XM
franchise in Canada, rose 5 per cent in the following days.
But the rally was short-lived and the shares have fallen steadily since
then.
Aside from the temporary buzz created by such speculation, market watchers
say there are few reasons for investors to get excited about the industry
amid continuing losses.
“As an investor, the stocks have been slammed because the market wants them
to have continually accelerating growth,” said Steve Mather, an analyst with
Sanders Morris Harris in Los Angeles who tracks the industry. “And in the
real world you don't get continually accelerating growth.”
The U.S. operations of Sirius and XM both reported deep second-quarter
losses of $238-million (U.S.) and $230-million, respectively, in the past
two weeks as the companies spend aggressively in a heated battle for
subscribers.
In Canada, where Canadian Satellite Radio launched in late 2005, the company
remains in startup mode. However, losses associated with getting it off the
ground hit $20.4-million (Canadian) in the recent quarter and investors have
responded. The company's shares slipped to $8.50 last week, their lowest
point since December's initial public offering at $16 a share on the Toronto
Stock Exchange. (Sirius Canada is not publicly traded).
Despite rosy projections for the future, the satellite radio companies are
having a tough time convincing shareholders. Sirius increased its subscriber
projections for 2006 to 6.3 million last week, up slightly from previous
expectations of 6.2 million customers, but the news had little effect.
Sirius shares fell Monday to $3.81 (U.S.) on the Nasdaq Stock Market, less
than half their 52-week high in December.
If investors are looking for relief, Mr. Mather suggests they could be
waiting a while. Merger speculation may be the only thing lifting the
industry these days, but it's an unlikely saviour since a deal would face
too many hurdles, he said.
“It's ridiculous, absurd, preposterous, illogical — pick your adjective,”
Mr. Mather said. “They would never be allowed to go from two companies to
one.”
Beyond the obvious monopoly concerns from U.S. regulators, Mr. Mather
believes the biggest problem is justifying the price tag of a takeover.
“You've got to pay $6- or 7-billion if you want Sirius, and there isn't
$7-billion worth of synergy there,” he said. “And if you want XM, you're
going to pay $4-billion. And there isn't $4-billion worth of synergy there
either.”
That hasn't stopped investors from warming up to the idea, or at least
trading on the immediate jump the speculation creates.
“It was huge,” Mr. Mather said of the rally Mr. Karmazin's comments created.
“But it was silly.”