Citi slashes targets for Sirius (SIRI) and XM Satellite Radio (XMSR) on plummeting car sales:
Recent auto OEM weakness is worrisome for near-term sub growth, offsetting some of the positives from the guidance. Impact on our forecasts: 1) gross subs synergies are cut in half to more conservatively account for OEM weakness, although churn synergies are unchanged; 2) interest expense is higher to reflect XMSR debt refinancing; and 3) beta is higher to account for stock volatility
SIRI target goes from $9 to $6; XMSR goes from $12.75 to $9.00.
In other Sirius news, yesterday, Sirius also released post-merger guidance, forecasting 2009 EBITDA of $300 million. The number slightly beat street expectations, and Citi characterised the forecast as “conservative.” Citi now gives the merger a 90% chance of being completed successfully:
We believe that the news, combined with the convert amendment and mgmt’s recent spate of investor meetings, supports our view that the merger is likely to close. Furthermore, the arb spread has narrowed to ~10%, which matches our 90% merger probability.
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