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Sirius Satellite Radio Inc. (NASDAQ: SIRI) and XM Satellite Radio Holdings Inc. (NASDAQ: XMSR) surged yesterday after Citigroup analyst Eileen Furukawa estimated that the proposed multibillion-dollar merger has a greater than 60% chance to succeed. The analyst believes regulators have shifted in favor of the merger and that the market, currently giving the deal only a 24% chance of passing regulatory muster, is underestimating the chances and is too bearish. Furukawa has upped XM's price target to $19.50 from $15.
Still, if the merger goes through, Furukawa estimates it could produce up to $7.2 billion in cost savings and further, this estimate might be conservative as it does not include capex savings. In addition, the merged company could drive higher ad revenues and move away from the subscriber-based model into the ad-revenue one that seems to be where many believe the money is, especially as the early subscriber growth both companies experienced has cooled.
If the merger indeed succeeds and the cost savings are achieved, there may be a chance the combined company could rediscover the earlier growth it once witnessed. As Dana Cimilluca of the WSJ Deal Journal notes, this cost savings is bigger than XM's market cap of $4.67 billion, so no wonder both companies and their shareholders pushed the merger forward so passionately. They know what might happen if the merger doesn't go through.
One last comment on this. Contrary to Furukawa, Jonathan Jacoby of Banc of America Securities thinks that the stocks' recent prices actually imply that investors think there is an 85% chance of the merger succeeding. I'm not sure what could explain such a big difference in the two opinions, but I do know what mine has been all along and why I'm in trouble with many satellite fans. I do believe these to be too risky for their potential upside and I'm staying out.
Tuesday, SIRI shares closed up 3.77% to $3.5799 and XMSR shares up 6.87% to $15.24. Today, XM shares are cooling a bit, down over 1% to $15.08, while Sirius shares are continuing to climb, up more than 3% to $3.69 by midday.
PetSmart Inc. (NASDAQ: PETM) this morning trimmed its sales and profit forecast for the rest of the year due to weak consumer spending and warmer-than-usual weather. PetSmart now expects 17 cents to 20 cents per share for the third quarter, from a previous forecast of 21 cents to 23 cents earnings per share.
ConAgra Foods Inc. (NYSE: CAG) "voluntarily stopped production at the Missouri plant that makes its Banquet pot pies after health officials said the pies may be linked to 139 cases of salmonella in 30 states, including Wisconsin."
Oracle (NASDAQ: ORCL) yesterday announced it has agreed to acquire LogicalApps, a provider of automated Governance, Risk and Compliance (GRC) controls management solutions.
While many schools ban and confiscate Apple Inc.'s (NASDAQ: AAPL) iPods, some found a good use for them, The New York Times Reports -- to help bilingual kids with some difficulty understanding English. As for the iPhone, Piper Jaffray conducted a survey and found that 3% of teens already own an iPhone.
Hoping to capitalize on the social networking craze, eBay Inc. (NASDAQ: EBAY) has launched its own version of a social networking service today, Neighborhoods, and is promising other customer-friendly features by year's end.
Google Inc. (NASDAQ: GOOG) has bought Jaiku, an activity stream and presence sharing service that works from the Web and mobile phones.
There was much news on Sirius Satellite Radio (NASDAQ: SIRI) and XM Satellite Radio (NASDAQ: XMSR) yesterday and the shares surged after a Citigroup analyst Eileen Furukawa estimated the transaction's likelihood of closing at greater than 60%. The merger, she said, could produce up to $7 billion in cost savings. She has upped XM's price target to $19.50 from $15. The market, however, still gives the deal only a 24% chance of passing regulatory muster. SIRI shares closed up 3.77% and XMSR shares up 6.87%.
XM Satellite Radio Holdings Inc. (NASDAQ: XMSR) announced the date scheduled to vote on Sirius Satellite Radio Inc.'s (NASDAQ: SIRI) proposed multibillion-dollar acquisition would be November 13 at 3:00 p.m. in Washington, DC. The deal values XM at $15.92 a share, based on Sirius' closing price Wednesday, when the vote date was released,. The deal is structured to give existing XM and Sirius shareholders roughly 50-50 ownership in the combined company, with 4.6 Sirius shares for each XM share.
Of course, the deal still requires approvals from the Federal Communications Commission and Justice Department, and it is those votes that really matter, because I doubt the shareholders of XM or Sirius would vote against the deal. The boards of both companies have already approved it.
We all remember the road these two have taken since they announced the proposed merger in February. Analysts keep changing the odds of approval, especially considering that when the FCC granted their licenses in 1997, it did so on the condition that they never combine to create a potential satellite radio monopoly. Yet, Sirius' CEO Mel Karmazin keeps claiming that conditions in the market have changed -- that satellite radio now competes with high-definition radio, internet-based radio, mobile digital music gadgets such as the iPod as well as terrestrial radio.
The blogosphere is abuzz over Apple Inc.'s (NASDAQ: AAPL) iPhone. The company had said that hacked phones will not work following yesterday's software update. Guess what? The company didn't lie and depending on which unlocking program was used, certain modified phones no longer worked after they installed the software update. Many are furious. Is this going to be a PR nightmare? Will Apple fans actually speak out against the company?
According to Detroit News, Ford (NYSE: F) may seek even deeper cost cuts from the United Auto Workers union than those that the union agreed with General Motors (NYSE: GM) as these cuts it may not be enough for Ford, which is in worse financial shape than GM.
A college student, Ahmed Abdellatif Sherif Mohamed, who made a video showing how to detonate explosives using a remote-controlled toy and uploaded it to Google Inc.'s (NASDAQ: GOOG) YouTube is facing a terrorism-related charge. No doubt, debates will ensue on YouTube's responsibilities and controls of such videos.
Starbucks Corp (NASDAQ: SBUX) and PepsiCo Inc (NYSE: PEP) said yesterday they were expanding their bottled coffee business into countries outside North America, including a first into China. No financial terms were disclosed or what other countries they are targeting, except that they could include those that do not yet have Starbucks stores.
Sirius (NASDAQ: SIRI) and XM (NASDAQ: XMSR) shares are declining in premarket action this morning after FCC Chairman discusses the proposed merger, saying there is a "higher burden" to examine the transaction carefully.
Michael Copps, a member of the FCC, said that the tests for some upcoming mergers should be set higher. Two deals over which he showed special concern were the Sirius (NASDAQ: SIRI) merger with XM (NASDAQ: XMSR) and the News Corp (NYSE: NWS) purchase of Dow Jones (NYSE: DJ).
Mr Copps' worries about Dow Jones are simple enough. He is troubled that Mr. Murdoch will have such a large concentration of media in New York
He shows even more interest in the Sirius plan. The Wall Street Journal writes that "as one of five FCC commissioners, Mr. Copps will cast a vote on whether the Sirius-XM merger and Tribune sale should be allowed to proceed." Copps may want the satellite radio companies to give more guarantees on prices charged to consumers.
XM and Sirius stocks have both moved off lows as it appeared that approval for their merger looks more certain. The stocks are sill severely depressed. Copps comments may help push them down again.
While the satellite radio company merger may face more opposition than was anticipated recently, the firms still have a compelling argument about how competitive the marketplace is. They continue to lose money and, without some change in their structures, their debt loads could sink them. Perhaps someone will point that out to Copps.
With the tech rally yesterday, Apple Inc. (NASDAQ: AAPL) and Research in Motion (NASDAQ: RIMM) reached new record highs. Apple closed at $153.18, up $4.90 or 3.3%. In premarket, AAPL is enjoying the rally and is up another 0.93% as of 7:47 a.m. RIMM shares closed at $96.82, up $2.32 or 2.45%. This morning, shares are up another 1.38% as of 7:47 a.m.
Ford shares are up nearly 4.5% in premarket trading following the strike end at GM. GM shares are up over 8% in premarket action as of 7:52 a.m. Ford (NYSE: F) plans to offer HD digital radio on nearly every 2008 model year Ford, Lincoln and Mercury vehicle as a dealer-installed option. More than 1,500 radio stations in the United States currently broadcast in HD digital sound. Could such a step affect satellite radio? Sirius and XM offer not only better sound, but also commercial free listening as well as a wide variety of stations. They have contested, however, for their merger to be approved that one competitor is HD radio. It seems that a wider acceptance of HD radio may help prove their point. SIRI and XMSR shares are up over 2% in premarket action.
Bed Bath & Beyond (NASDAQ: BBBY) declined 4.24% yesterday, ahead of its reported earnings today. It is expected to to post earnings of 52 cents a share for the second quarter.
JPMorgan updated some retailers rating. The broker upgraded Office Depot (NYSE: ODP) to Overweight from Neutral -- shares are up nearly 5% in premarket -- and downgraded Walgreen (NYSE: WAG) and Staples (NASDAQ: SPLS) to Neutral from Overweight -- shares are down 0.8% and 1% respectively in premarket trading as of 8:00.
WebProNews reports on a rumor that Google Inc. (NASDAQ: GOOG) is proposing to take over Sirius Satellite Radio (NASDAQ: SIRI). This rumor originated with Zachary Rodgers on ClickZ who posted: "A high profile source is pretty convinced ol' Goog is on the verge of snapping up Sirius Radio."
While such a merger would benefit Google, which is looking for a satellite outlet for its dMarc/AdWords radio advertising technology, there is little likelihood that Sirius would cooperate. After all, it's trying to get approval to merge with XM Satellite Radio Holdings (NYSE: XMSR).
I think this rumor is amusing, and if Google wants Sirius to use its technology to serve radio advertisements, it could just wait until after the merger and try to sell it to the new company. It's hard to see why buying a money losing company for, say, $5 billion just to sell it some technology would generate a positive return for Google shareholders.
Sirius Satellite Radio (NASDAQ: SIRI) and XM Satellite RadioHoldings (NASDAQ: XMSR) have finished the day down 4.29% and 5.53% respectively following a downgrade to Neutral from Buy at UBS. UBS analyst Lucas Binder lowered his FY 2008 loss per share estimates for Sirius to $0.42 from a $0.40 but upped the price target to $3.90 from $3.75. XM fared a little better as Binder increased his estimate of loss per share to $1.61 from $1.68 and moved his price target to $16 from $15. The analyst believes the current stock prices reflect most of the fundamental upside.
Well, some investors may look at today's declines as an opportunity to get into the stocks. I wouldn't. It may be worth nothing that while both radio companies are valued nearly always similarly, many favor Sirius, saying it can only come out a winner regardless of how the dice rolls on the proposed merger of the two. Should the merger go through, all the better; if it doesn't, then Sirius is the faster growing and the better positioned one of the two.
MOST NOTEWORTHY: The process control sector, R.H. Donnelley, Vonage, Coca-Cola Enterprises and Transocean were today's noteworthy downgrades:
Baird reduced estimates across the board in the process control sector due to lower expectations for North American industrial and residential construction. The firm downgraded Roper Industries (NYSE: ROP), Regal-Beloit Corp (NYSE: RBC) and Baldor Electric (NYSE: BEZ) to Neutral from Outperform and AO Smith Corporation (NYSE: AOS) to Underperform from Neutral.
Goldman downgraded shares of R.H. Donnelley Corporation (NYSE: RHD) to Neutral from Buy after the company updated its 2007 guidance to reflect deteriorating trends in local advertising.
Vonage Holdings Corp (NYSE: VG) was downgraded to Sell from Hold at Soleil due to liquidity concerns.
Coca-Cola Enterprises (NYSE: CCE) was downgraded to Hold from Buy at Deutsche Bank on valuation and mixed near-term trends.
Transocean Inc (NYSE: RIG) was downgraded to Hold from Buy at Gabelli. Even though the deepwater market continues to be strong, the firm is concerned regarding the continuing weakness in the jackup market as well as the limited upside potential due to the company's ships being in use through 2009.
TheStreet.com said yesterday Apple Inc (NASDAQ: AAPL) has plans to nearly double its iPhone production (video) in the fourth quarter. According to sources, Apple will make 2.7 million iPhones next quarter, up from the 1.54 million originally targeted. Meanwhile, Deutsche Telekom's T-Mobile has officially announced it won a deal to sell the iPhone in Germany for €399 euros ($558). Also, there is word that Steve Jobs has confirmed that Apple plans a 3G iPhone later next year. But it seems some analysts think Apple will have a tougher sell in Europe than in the U.S. also because of the current lack of support for 3G networks. AAPL shares are up over 0.6% in premarket trading.
GE Capital International Holdings Corporation, a unit of General Electric (NYSE: GE) had bought 164.3 million new shares for 2.63 billion baht ($76.81 million) in Thailand's Bank of Ayudhya PCL, raising its stake to 34.92% from 31%.
General Mills Inc. (NYSE: GIS) reported quarterly earnings today. Helped by a move to reduce the size of cereal boxes and charge consumers more per ounce, the company's net income was $289 million, or 81 cents per share, compared with $267 million, or 74 cents per share, a year ago and beating Street estimates of 79 cents per share.
Darden Restaurants Inc. (NYSE: DRI) reported earnings yesterday after the bell, posting a 20% rise in quarterly net earnings, helped by higher prices and increased customer traffic at some of its restaurants. First-quarter net income was $105.9 million, or 72 cents per share, compared with $88.5 million, or 59 cents per share, a year ago, beating expectations of 70 cents per share.
Accredited Home Lenders (NADSAQ: LEND) shares are up over 17% in premarket trading after it has agree yesterday to be bought at a lower price of $11.75 per share by Lone Star. The acquisition remains structured as an all-cash tender offer.
Sirius Satellite Radio (NASDAQ: SIRI) and XM Satellite Radio Holdings (NASDAQ: XMSR) were both downgraded to Neutral from Buy at UBS. SIRI shares are down over 1.1% in premarket trading.
Apple Inc. (NASDAQ: AAPL) shares had a good day yesterday, ending the day up 1% as UBS lifted its price target on the stock to $182 from $175. UBS expects many more products could be introduced between now and March 2008. Meanwhile, Apple is calling a London news conference next Tuesday. Naturally, many speculate it would announce its partner for the iPhone in different European countries as it aims to bring the new hyped phone across the pond before the holidays. So far it is expected Apple will go with Spanish Telefonica's O2 UK unit for that country, with Deutsche Telekom's T-Mobile in Germany and with France Telecom's Orange in France.
General Motors Corp. (NYSE: GM) and Ford Motor Co. (NYSE: F) shares are up 4% and 3% respectively in premarket trading. The Wall Street Journal reported that the United Auto Workers union may be willing to agree to the creation of a union-controlled trust fund [subscription required] to assume responsibility for nearly $100 billion in retiree health care costs, which could clear the way to the Big-3 to reach a deal that may position them better in the market, the deal hasn't closed yet. Meanwhile, though, theflyonthewal.com reports that Citigroup is assuming auto coverage, upgrading GM from Sell to Buy and a $41 target, and Ford is assumed with Hold and a $8 target.
Target Corp. (NYSE: TGT) is also up in premarket trading, nearly 2.3%, after the company announced yesterday it may sell its credit-card receivables valued at $7 billion. Target also said it would also evaluate its use of debt and the pace of stock buybacks.
Merck & Co. (NYSE: MRK) is up 1.8% in premarket trading after it was upgraded to Buy from Neutral at Banc of America Securities.
Satellite radio companies Sirius (NASDAQ: SIRI) and XM (NASDAQ: XMSR) continue their recent positive movement following an analyst note that suggested the merger would be approved within the next month. SIRI is up 1.8% in premarket trading, XMSR 1.4%.
SIRI is recently up $0.22 to $3.53, over 6%. SIRI and XMSR announced on 2/20/07 a merger of equals. XMSR shareholders will receive 4.6 SIRI shares for each XMSR share.
Cowen says: "We expect FCC approval before Dec. 4, the end of the FCC review period. We believe approval as early as Oct. is possible. Maintain Outperform on both XMSR & SIRI."
XMSR-SIRI arbitrage premium spread is at 12%. Mel Karmazin is CEO of SIRI.
XMSR December option implied volatility of 68 is above its 26-week average of 51 according to Track Data, suggesting larger price risks.
XM Satellite Radio (NASDAQ: XMSR) volatility up; Arbitrage spread tightens into FCC decision.
XMSR is recently up $1.07 to $14.69.
SIRI October option implied volatility of 71 is above its 26-week average of 53 according to Track Data, suggesting larger price risks.
Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
XM Satellite Radio Holdings Inc. (NASDAQ: XMSR) is higher this morning and has climbed recently as current investor buzz is that the merger with Sirius (NASDAQ: SIRI) looks more and more likely to succeed. Analysts have said the Department of Justice could make a ruling on the merger within the next month, and they believe there is a better than even money chance the merger will be approved. If you think the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on XMSR.
After hitting a one-year high of $17.70 in January, the stock has been shaky all year as investors await firm news on the status of the planned SIRI deal. XMSR opened this morning at $13.32. So far today the stock has hit a low of $13.26 and a high of $13.64. As of 10:50, XMSR is trading at $13.55, up $0.35 (2.7%). The chart for XMSR looks bullish and steady, but S&P gives the stock its lowest 1 STAR (out of 5) strong sell rating.
For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $10 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 16.3% return in just 5 months as long as XMSR is above $10 at January expiration. XM would have to fall by more than 26% before we would start to lose money.
XMSR hasn't been below $10 by more than a few cents since 2003 and has shown support around $11 recently. This trade could be risky if the merger is not allowed, but even if that happens, this position could be protected by the strong support the stock formed just above $10 over the last year.
After hitting a one year high of $17.70 in January, the stock has slipped quite a bit, settling in just above the $10 mark with recent resistance around $12. XMSR opened this morning at $11.43. So far today the stock has hit a low of $11.37 and a high of $11.94. As of 11:05, XMSR is trading at $11.79, up $0.30 (2.6%). The chart for XMSR looks neutral and improving slightly, while S&P gives the stock a very negative 1 STARS (out of 5) strong sell rating.
For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $10 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in just 2 months as long as XMSR is above $10 at October expiration. XM would have to fall by more than 15% before we would start to lose money.
XMSR hasn't been below $10 by more than a few cents at all in the past year and has shown support around $10.90 recently. This trade could be risky if the Sirius merger falls through, but even if that happens, that decision is not expected until early in 2008.
Has the time come for Apple Inc. (NASDAQ: AAPL) to worry about competition from Google Inc. (NASDAQ: GOOG), the search giant that has become such a formidable competitor to Microsoft Corp. (NASDAQ: MSFT)? Well, talk of the Google Phone or Gphone has been floating for a quite a while and now, according to Rediff, the Gphone launch "is believed to be a fortnight away." Also according to the site, Google "has started talks with service providers in India for an exclusive launch on one of their networks," and that "a simultaneous launch across the US and Europe is expected." Of course, Google wouldn't comment on rumors. The Gphone, if ever launched, will no doubt be compared to Apple's iPhone, but as I said, rumors of the Gphone have been around a while now. Google never commented, yet these rumors keep returning. Will this be another such rumor that will fade away into the blogosphere?
The Gap Inc. (NYSE: GPS) reported earnings after the close yesterday and quite impressed Wall Street as the stock is trading up 3.33% in premarket action (7:46 a.m.). Gap posted a second-quarter profit that surged 19% to $152 million, or 19 cents per share. While online sales soared 26%, second-quarter revenue declined 1% to $3.69 billion, and same-store sales declined by 5%. Analysts expected Gap to earn 19 cents per share on revenue of $3.72 billion. Analysts liked what they saw as well.
And ... the coast is clear to Whole Foods Market Inc. (NASDAQ: WFMI), Wild Oats Markets Inc. (NASDAQ: OATS) merger to proceed after an appeals court upheld the ruling from last week, denying the FTC its request to block the merger. WFMI stock is trading up 2.68% in premarket (8:00 a.m.) while OATS is up 2.27% (8:06 a.m.). Will we see Sirius and XM moving higher on the news as many believe this merger approval would pave the way to the satellite radio companies' merger being approved as well?
Burger King Holdings Inc. (NYSE: BKC) reported fourth quarter results this morning, posting a profit versus a loss a year earlier. BK earned $36 million, or 26 cents per share and sales rose 11% to $590 million. Analystshad expected earnings of 27 cents per share on sales of $580.4 million. Shares of BKC are up 4.33% in premarket trading (8:02 a.m.).
More profit warnings: 
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